A taxpayer can invest $1,000 in a money market fund that yields an annual pretax rate of return of 8% or buy an acre of land for $1,000 that appreciates at a 7% annual rate. The taxpayer plans to sell the land after 20 years and faces a 25% tax rate each year. (For purposes of this problem, ignore any risk differences between investments.) What is the after-tax accumulation at the end of 20 years from each investment? What is the annualized after-tax rate of return from each investment?

A taxpayer can invest $1,000 in a money market fund that yields an annual pretax rate of return of 8% or buy an acre of land for $1,000 that appreciates at a 7% annual rate. The taxpayer plans to sell the land after 20 years and faces a 25% tax rate each year. (For purposes of this problem, ignore any risk differences between investments.) What is the after-tax accumulation at the end of 20 years from each investment? What is the annualized after-tax rate of return from each investment?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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