Exam 18: Taxes and Investment Planning

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If "R" equals the before-tax rate of return and "t" equals the investor's marginal tax rate,then the after-tax rate of return represented by "r" can be expressed as

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Jan can invest $4,000 of after-tax dollars (AT$) directly in a taxable bond outside an IRA,or she can contribute the $4,000 to a nondeductible IRA and invest in the same bond through the IRA vehicle.In either case the bond yields an annual 4% before-tax rate of return (BTROR).Jan's marginal tax rate is 15%,and she expects it to remain so for the entire investment horizon of 25 years.What is her annualized after-tax rate of return (annualized ATROR) for the "bond inside the IRA"?

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Employer-sponsored qualified retirement plans and deductible IRAs fit the Pension Model.

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State and local government obligations such as municipal bonds are classic examples of which model?

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