Calculate the after-tax yields

Reference no: EM1351406

Bernie and Pam Britten are a young married couple beginning careers and establishing a household. They will each make about $50,000 next year and will have accumulated about $40,000 to invest. They now rent an apartment but are considering purchasing a condominium for $100,000. If they do, a down payment of $10,000 will be required.

They have discussed their situation with Lew McCarthy, an investment advisor and personal friend, and he has recommended the following investments:

The condominium - expected annual increase in market value = 2%.
Municipal bonds - expected annual yield = 3%.
High-yield corporate stocks - expected dividend yield = 5%.
Savings account in a commercial bank-expected annual yield = 1%.
High-growth common stocks - expected annual increase in market value = 6%; expected dividend yield = 0.

Required:

1. Calculate the after-tax yields on the foregoing investments, assuming the Brittens have a 28% marginal tax rate (based on Public Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003).

2. How would you recommend the Brittens invest their $40,000? Explain your answer.

Reference no: EM1351406

Questions Cloud

Explain what are the conditions to a high-performance work : Explain what are the conditions that contribute to a high-performance work system?

Select statement to return one row : Write a SELECT statement that returns one row for each general ledger account number which contains three columns.

Caretaking for death and dying process : Identify how a caregiver takes into consideration his or her patients' age, culture, family structure, et cetera, in working with patients during their later years and through the death and dying process.

Illustrate what is the economic profit of the business : Compute accounting profit. What are the opportunity costs for the manager of being in this business relative to returning to his old job. Illustrate what is the economic profit of the business.

Calculate the after-tax yields : Bernie and Pam Britten are a young married couple starting careers and establishing a household. They will every make about $50,000 next year and will have accumulated about $40,000 to invest.

Explaining mismatched file headers to extensions : What procedures would you require to follow to retrieve evidence? Identify mismatched file headers to extensions.

Cost behavior and cost-drivers affect flexible budgets : How do cost behavior and cost-drivers affect flexible budgets and the sales budget might be crucial, but what about the other budgets?

Must restaurants provide calorie and nutrition information : Must restaurants provide calorie and nutrition information before they are required to do so by law

What is the temperature of the flame : A boy whirls a stone using an r-m long string in a horizontal circle h m above the ground. The string broke, and the stone flies off horizontally and strike the ground x m away.The velocity with which the stone flies off the circle is? The centrip..

User Account

All Pages