V. You want to save $2,000 today for retirement in 40 years. You have to choose between thetwo plans listed in (i) and (ii).(i) Pay no taxes today, put the money in an interest-yielding account, and pay taxes equal to20% of the total amount withdrawn at retirement. (In the U.S., such an account is knownas a regular individual retirement account, or IRA.)(ii) Pay taxes equivalent to 15% of the investment amount today, put the remainder in aninterest-yielding account, and pay no taxes when you withdraw your funds at retirement.(In the U.S., this is known as a Roth IRA.)a. What is the expected present discounted value of each of these plans if the interest rate is1%? 10%?b. Which plan would you choose in each case? Explain your logic clearly.

Roth and Regular IRA's are retirement accounts which are offered by financial institutions to…

V. You want to save $2,000 today for retirement in 40 years. You have to choose between the two plans listed in (i) and (ii). Pay no taxes today, put the money in an interest-yielding account, and pay taxes equal to 20% of the total amount withdrawn at retirement. (In the U.S., such an account is known as a regular individual retirement account, or IRA.) (ii) (i) Pay taxes equivalent to 15% of the investment amount today, put the remainder in an interest-yielding account, and pay no taxes when you withdraw your funds at retirement. (In the U.S., this is known as a Roth IRA.) a. What is the expected present discounted value of each of these plans if the interest rate is 1%? 10%? b. Which plan would you choose in each case? Explain your logic clearly.

V. You want to save $2,000 today for retirement in 40 years. You have to choose between the two plans listed in (i) and (ii). Pay no taxes today, put the money in an interest-yielding account, and pay taxes equal to 20% of the total amount withdrawn at retirement. (In the U.S., such an account is known as a regular individual retirement account, or IRA.) (ii) (i) Pay taxes equivalent to 15% of the investment amount today, put the remainder in an interest-yielding account, and pay no taxes when you withdraw your funds at retirement. (In the U.S., this is known as a Roth IRA.) a. What is the expected present discounted value of each of these plans if the interest rate is 1%? 10%? b. Which plan would you choose in each case? Explain your logic clearly.

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

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