Kate Can Invest $4,000 of After- Tax Dollars (AT$) Directly

Kate 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 3% before- tax rate of return (BTROR) . Kate's marginal tax rate is 15%, and she expects it to remain so for the entire investment horizon of 25 years. What is the after- tax accumulation for the "bond outside the IRA" after 25 years (assume that bond interest is reinvested at the same rate) ?

A) $8,375
B) $7,507
C) $5,585
D) None of the above.