Suppose you are a manager for a certain company. You earn $50,000 per year and are in the 28% federal income tax bracket. Each year you contribute $5,500 tax free to your individual retirement account, IRA. The account earns 7% annual interest. In addition, the amount of tax that you save each year by making these "pre-tax" contributions is invested in a taxable aggressive growth mutual fund averaging 17%. (a) How much tax do you save (in $) each year by making the retirement fund contributions? (b) Using Table 12-1, much will the retirement fund be worth (in $) in 30 years? (Round your answer to the nearest cent.) (c) Although the income from this investment is taxable each year, using Table 12-1, how much will the "tax savings" fund be worth (in $) in 30 years? (Round your answer to the nearest cent.)
Suppose you are a manager for a certain company. You earn $50,000 per year and are in the 28% federal income tax bracket. Each year you contribute $5,500 tax free to your individual retirement account, IRA. The account earns 7% annual interest. In addition, the amount of tax that you save each year by making these "pre-tax" contributions is invested in a taxable aggressive growth mutual fund averaging 17%. (a) How much tax do you save (in $) each year by making the retirement fund contributions? (b) Using Table 12-1, much will the retirement fund be worth (in $) in 30 years? (Round your answer to the nearest cent.) (c) Although the income from this investment is taxable each year, using Table 12-1, how much will the "tax savings" fund be worth (in $) in 30 years? (Round your answer to the nearest cent.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Suppose you are a manager for a certain company. You earn $50,000 per year and are in the 28% federal income tax bracket. Each year you contribute $5,500 tax free to your individual retirement account, IRA. The account earns 7% annual interest. In addition, the amount of tax that you save each year by making these "pre-tax" contributions is invested in a taxable aggressive growth mutual fund averaging 17%.
(a) How much tax do you save (in $) each year by making the retirement fund contributions?
(b) Using Table 12-1, much will the retirement fund be worth (in $) in 30 years? (Round your answer to the nearest cent.)
(c) Although the income from this investment is taxable each year, using Table 12-1, how much will the "tax savings" fund be worth (in $) in 30 years? (Round your answer to the nearest cent.)
Transcribed Image Text:TABLE 12-1 Future Value (Amount) of an Ordinary Annuity of $1 (Continued)
Periods 9%
1
2
3 3.27810
4
5
6
7
8
9
10%
11%
12%
1.00000
13%
1.00000
1.00000
1.00000
1.00000
2.09000 2.10000 2.11000 2.12000
2.13000
3.31000 3.34210 3.37440 3.40690
4.57313 4.64100 4.70973 4.77933 4.84980
5.98471 6.10510 6.22780 6.35285 6.48027
10
16%
14% 15%
1.00000 1.00000
1.00000
2.14000 2.15000
2.16000
3.43960 3.47250
3.50560
4.92114 4.99338
5.06650
6.61010 6.74238 6.87714
7.71561
7.52333
7.91286 8.11519 8.32271 8.53552 8.75374 8.97748
9.20043 9.48717 9.78327 10.08901 10.40466 10.73049 11.06680 11.41387
11.02847 11.43589 11.85943 12.29969 12.75726 13.23276 13.72682 14.24009
13.02104 13.57948 14.16397 14.77566 15.41571 16.08535 16.78584 17.51851
15.19293 15.93742 16.72201 17.54874 18.41975 19.33730 20.30372 21.32147
11 17.56029 18.53117 19.56143 20.65458 21.81432 23.04452 24.34928 25.73290
12 20.14072 21.38428 22.71319 24.13313 25.65018 27.27075 29.00167 30.85017
13 22.95338 24.52271 26.21164 28.02911 29.98470 32.08865 34.35192 36.78620
14 26.01919 27.97498 30.09492 32.39260 34.88271 37.58107 40.50471 43.67199
29.36092 31.77248 34.40536 37.27971 40.41746 43.84241 47.58041 51.65951
15
26 93.32398 109.18177 127.99877 150.33393 176.85010 208.33274 245.71197 290.08827
27 102.72313 121.09994 143.07864 169.37401 200.84061 238.49933 283.56877 337.50239
28 112.96822 134.20994 159.81729 190.69889 227.94989 272.88923 327.10408 392.50277
29 124.13536 148.63093 178.39719 214.58275 258.58338 312.09373 377.16969 456.30322
30 136.30754 164.49402 199.02088 241.33268 293.19922 356.78685 434.74515 530.31173
17%
18% Periods
1.00000 1
1.00000
2.17000 2.18000 2
3.53890 3.57240 3
5.14051
5.21543 4
7.01440
7.15421 5
16
72.93901 16
66.64885
78.97915 87.06804 17
33.00340 35.94973 39.18995 42.75328 46.67173 50.98035 55.71747 60.92503
17 36.97370 40.54470 44.50084 48.88367 53.73906 59.11760 65.07509 71.67303
18 41.30134 45.59917 50.39594 55.74971 61.72514 68.39407 75.83636 84.14072 93.40561 103.74028 18
19 46.01846 51.15909 56.93949 63.43968 70.74941 78.96923 88.21181 98.60323 110.28456 123.41353 19
20 51.16012 57.27500 64.20283 72.05244 80.94683 91.02493 102.44358 115.37975 130.03294 146.62797 20
The values in Table 12-1 were generated by the formula
rate per period and n is the total number of periods.
6
9.20685 9.44197
11.77201 12.14152 7
14.77325 15.32700 8
18.28471 19.08585 9
22.39311 23.52131 10
21
153.13854 174.02100 21
22
180.17209 206.34479 22
56.76453 64.00250 72.26514 81.69874 92.46992 104.76842 118.81012 134.84051
62.87334 71.40275 81.21431 92.50258 105.49101 120.43600 137.63164 157.41499
69.53194 79.54302 91.14788 104.60289 120.20484 138.29704 159.27638 183.60138 211.80134 244.48685 23
24 76.78981 88.49733 102.17415 118.15524 136.83147 158.65862 184.16784 213.97761 248.80757 289.49448 24
25 84.70090 98.34706 114.41331 133.33387 155.61956 181.87083 212.79302 249.21402 292.10486 342.60349 25
23
27.19994 28.75514 11
32.82393 34.93107 12
39.40399 42.21866 13
47.10267 50.81802 14
56.11013 60.96527 15
(1 + i)" - 1
i
758.50377 934.31863 31
888.44941 1103.49598 32
31 149.57522 181.94342 221.91317 271.29261 332.31511 407.73701 500.95692 616.16161
32 164.03699 201.13777 247.32362 304.84772 376.51608 465.82019 577.10046 715.74746
33 179.80032 222.25154 275.52922 342.42945 426.46317 532.03501 664.66552 831.26706 1040.48581 1303.12526 33
34 196.98234 245.47670 306.83744 384.52098 482.90338 607.51991 765.36535 965.26979 1218.36839 1538.68781 34
35 215.71075 271.02437 341.58955 431.66350 546.68082 693.57270 881.17016 1120.71295 1426.49102 1816.65161 35
36 236.12472 299.12681 380.16441 484.46312 618.74933 791.67288 1014.34568 1301.02703 1669.99450 2144.64890 36
342.76268 405.27211 26
402.03234 479.22109 27
471.37783 566.48089 28
552.51207 669.44745 29
647.43912 790.94799 30
and rounded to five decimal places, where i is the interest
Transcribed Image Text:TABLE 12-1 Future Value (Amount) of an Ordinary Annuity of
1%
Periods
1% 11/% 2%
1
2
3
1.00000 1.00000 1.00000
2.00500 2.01000 2.01500
2.02000 2.03000
3.04522 3.06040 3.09090
4.09090 4.12161 4.18363
5.15227 5.20404 5.30914
3.01502 3.03010
4.03010 4.06040
4
5 5.05025 5.10101
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
29
30
5%
6%
7%
3%
4%
1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
2.04000 2.05000 2.06000 2.07000
3.12160 3.15250 3.18360 3.21490
4.24646 4.31013 4.37462 4.43994
5.41632 5.52563 5.63709 5.75074
31
32
6.07550 6.15202 6.22955 6.30812 6.46841 6.63298 6.80191 6.97532 7.15329 7.33593
7.10588 7.21354 7.32299 7.43428 7.66246 7.89829 8.14201 8.39384 8.65402 8.92280
8.14141 8.28567 8.43284
9.18212 9.36853 9.55933 9.75463 10.15911 10.58280 11.02656 11.49132
10.22803 10.46221 10.70272 10.94972 11.46388 12.00611 12.57789 13.18079 13.81645
8.58297 8.89234 9.21423 9.54911 9.89747 10.25980 10.63663
11.97799 12.48756
14.48656
8%
1.00000
2.08000
3.24640
4.50611
5.86660
Periods
1
2
3
4
5
6
7
8
9
16.64549
11
12
11.27917 11.56683 11.86326 12.16872 12.80780 13.48635 14.20679 14.97164 15.78360
12.33556 12.68250 13.04121 13.41209 14.19203 15.02581 15.91713 16.86994 17.88845 18.97713
13.39724 13.80933 14.23683 14.68033 15.61779 16.62684 17.71298 18.88214 20.14064 21.49530
14.46423 14.94742 15.45038 15.97394 17.08632 18.29191 19.59863 21.01507 22.55049 24.21492 14
15.53655 16.09690 16.68214 17.29342 18.59891 20.02359 21.57856 23.27597 25.12902 27.15211 15
13
10
16
16.61423 17.25786 17.93237 18.63929 20.15688 21.82453 23.65749 25.67253 27.88805 30.32428
17.69730 18.43044 19.20136 20.01207 21.76159 23.69751 25.84037 28.21288 30.84022 33.75023 17
18.78579 19.61475 20.48938 21.41231 23.41444 25.64541 28.13238 30.90565 33.99903 37.45024 18
19.87972 20.81090 21.79672 22.84056 25.11687 27.67123 30.53900 33.75999 37.37896 41.44626 19
20.97912 22.01900 23.12367 24.29737 26.87037 29.77808 33.06595 36.78559 40.99549 45.76196
20
26
26 27.69191 29.52563 31.51397 33.67091 38.55304 44.31174 51.11345 59.15638 68.67647 79.95442
27 28.83037 30.82089 32.98668 35.34432 40.70963 47.08421 54.66913 63.70577 74.48382 87.35077 27
28 29.97452 32.12910 34.48148 37.05121 42.93092 49.96758 58.40258 68.52811 80.69769 95.33883 28
31.12439 33.45039 35.99870 38.79223 45.21885 52.96629 62.32271 73.63980 87.34653 103.96594 29
32.28002 34.78489 37.53868 40.56808 47.57542 56.08494 66.43885 79.05819 94.46079 113.28321 30
The values in Table 12-1 were generated by the formula
rate per period and n is the total number of periods.
22.08401 23.23919 24.47052 25.78332 28.67649 31.96920 35.71925 39.99273 44.86518 50.42292 21
23.19443 24.47159 25.83758 27.29898 30.53678 34.24797 38.50521 43.39229 49.00574 55.45676 22
24.31040 25.71630 27.22514 28.84496 32.45288 36.61789 41.43048 46.99583 53.43614 60.89330 23
25.43196 26.97346 28.63352 30.42186 34.42647 39.08260 44.50200 50.81558 58.17667 66.76476 24
26.55912 28.24320 30.06302 32.03030 36.45926 41.64591 47.72710 54.86451 63.24904 73.10594
25
(1 + i)" - 1
i
33.44142 36.13274 39.10176 42.37944 50.00268 59.32834 70.76079 84.80168 102.07304 123.34587 31
34.60862 37.49407 40.68829 44.22703 52.50276 62.70147 75.29883 90.88978 110.21815 134.21354 32
33 35.78167 38.86901 42.29861 46.11157 55.07784 66.20953 80.06377 97.34316 118.93343 145.95062 33
34 36.96058 40.25770 43.93309 48.03380 57.73018 69.85791 85.06696 104.18375 128.25876 158.62667 34
35 38.14538 41.66028 45.59209 49.99448 60.46208 73.65222 90.32031 111.43478 138.23688 172.31680 35
36 39.33610 43.07688 47.27597 51.99437 63.27594 77.59831 95.83632 119.12087 148.91346 187.10215 36
and rounded to five dec mal places, where i is the interest
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