Justin is comparing two investments, A and B. A pays its return in interest, whereas B is a growth investment whose return is in the form of price appreciation. Assume Justin sells Investment B after one year. What is the difference between Investments A and B on an after-tax return basis after one year if Justin's marginal tax rate is 32% and both investments are expected to earn 10% on an initial investment of $50,000?

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Investment A's interest is taxed at the ordinary income rate of 32%, while Investment B's capital gains are taxed at a lower rate of 15%. Therefore, Investment B's after-tax return is higher. The difference in after-tax returns is $850.

Justin Is Comparing Two Investments, a and B