Question 1

An individual in the 15% tax bracket has $10,000 invested in a tax-exempt IRA account.If the individual earns 8% annually before taxes and inflation is 2.5% per year,what is the real value of the investment in 20 years?
A) $23,211
B) $28,467
C) $29,178
D) $37,276
E) $46,610

Accepted Answer

The annual real return adjusted for inflation is computed as follows:
(1.08)/(1.025)-1 = 5.37%.
FV = $10,000(1 + 0.0537)²? = $28,466.86

Question 2

You currently have $150,000 in an IRA designated for retirement.If you save an additional $100 at the end of every month and expect to earn an annual return of 12%,how much do you expect to have in the IRA in 10 years?
A) $467,632
B) $518,062
C) $732,546
D) $949,328
E) $1,215,234

Accepted Answer

$$F V = 100 \left( \frac { ( 1 + .01 ) ^ { 120 } - 1 } { .01 } \right) + 150,000 ( 1 + .01 ) ^ { 120 } = \$ 518,061.90$$

Question 3

Suppose the 8 percent investment of the previous problem is taxable rather than tax-deferred.What will be the after-tax value of his $10,000 investment after 5 years (assuming annual compounding)?
A) $10,680
B) $11,765
C) $13,895
D) $14,693
E) $15,528

Accepted Answer

After-tax yreld
= Befare-tar yield (1-Tar rate)
$= 88 \% ( 1 - .15 ) = 6.8 \% / 6$ $10,000(1 + 0.068)? = $13,895

Question 4

An individual in the 36% tax bracket has $20,000 invested in a tax-exempt account.If the individual earns 10% annually before taxes and inflation is 3.0% per year,what is the real value of the investment in 10 years?
A) $31,000
B) $33,200
C) $38,614
D) $39,343
E) $47,823

Accepted Answer

The annual real return adjusted for inflation is computed as follows:
(1.10)/(1.03)- 1 = 6.8%.
FV = $20,000(1 + 0.068)¹? = $38,613.80

Question 5

Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund.You currently have $10,000 in the mutual fund.The annual rate of interest that you expect to earn in this account is 4.35%.The amount in the account at the end of 15 years is
A) $58,940.30
B) $28,750.00
C) $37,009.35
D) $44,630.81
E) $25,690.50

Accepted Answer

$$F V = 1250 \left( \frac { ( 1 + .0435 ) ^ { 15 } - 1 } { .0435 } \right) + 10,000 ( 1 + .0435 ) ^ { 15 } = \$ 44,630.81$$

Question 6

An individual in the 36% tax bracket invests $5,000 in a tax-exempt IRA.If the investment earns 10% annually,what will be the value of the IRA after five years?
A) $6,600
B) $6,818
C) $7,500
D) $8,053
E) $10,879

Accepted Answer

The total amount is not adjusted for taxes or inflation.
FV = $5,000(1 + 0.10)? = $8,052.55

Question 7

Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account.What will be the value of a $10,000 investment after 5 years (assuming annual compounding)?
A) $ 6,805
B) $14,693
C) $15,528
D) $20,114
E) $50,000

Accepted Answer

FV = 10,000(1 + .08)? = $14,693

Quiz 2: The Asset Allocation Decision

An individual in the 15% tax bracket has $10,000 invested in a tax-exempt IRA account.If the individual earns 8% annually before taxes and inflation is 2.5% per year,what is the real value of the investment in 20 years?

You currently have $150,000 in an IRA designated for retirement.If you save an additional $100 at the end of every month and expect to earn an annual return of 12%,how much do you expect to have in the IRA in 10 years?

Suppose the 8 percent investment of the previous problem is taxable rather than tax-deferred.What will be the after-tax value of his $10,000 investment after 5 years (assuming annual compounding) ?

An individual in the 36% tax bracket has $20,000 invested in a tax-exempt account.If the individual earns 10% annually before taxes and inflation is 3.0% per year,what is the real value of the investment in 10 years?

Assume that you invest $1250 at the end of each of the next 15 years in a mutual fund.You currently have $10,000 in the mutual fund.The annual rate of interest that you expect to earn in this account is 4.35%.The amount in the account at the end of 15 years is

An individual in the 36% tax bracket invests $5,000 in a tax-exempt IRA.If the investment earns 10% annually,what will be the value of the IRA after five years?

Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt IRA account.What will be the value of a $10,000 investment after 5 years (assuming annual compounding) ?