An investor has an effective tax rate on all items of 30% and he decides to put $8,000 into a 401(k).The future value of the investment that results from the deferral of taxes over 30 years at an 8% return equals _____________.

Question

Quizplus · Accepted Answer

To calculate the future value of the investment that results from the deferral of taxes over 30 years, we need to use the following formula:

FV = (1 + r)^n * (P * (1 - t))

Where: 
r = rate of return = 8%
n = number of years = 30
P = initial investment = $8,000
t = tax rate = 30%

Plugging in the values, we get:

FV = (1 + 0.08)^30 * ($8,000 * (1 - 0.30))
FV = 10.064 ^ 30 * $5,600
FV = $24,150.99

Therefore, the future value of the investment that results from the deferral of taxes over 30 years at an 8% return is $24,150. Answer: D.

An Investor Has an Effective Tax Rate on All Items