1. The condominium - expected annual increase in market value = 5%.
ATY 2000x 0.72 = $1440 (2000 is the increase in value and since the tax rate is 28% we multiply the amount by (1-0.28)= 0.72. } This is to ascertain the after tax yield for Bernie and Pam.
This is the after tax yield if Bernie and Pam Britten go in for a condominium.
2. Municipal bonds - expected annual yield = 5%. ATY 2000 x 0.72 = $1440
This is the after tax yield if they go in for the Municipal bonds.
3. High-yield corporate stocks - expected dividend yield = 8%.
ATY 3200 x 0.85 = $2720 This is the after tax yield if they go in for high-yield corporate bonds.
4. Savings account in a commercial bank-expected annual yield = 3%.
ATY 1200x 0.72 = $846. This is the after tax yield if they go in for a savings account
in a commercial bank.
5. High-growth common stocks - expected annual increase in market value = 10%;
expected dividend yield = 0. ATY 4000 x 0.85 = $3400.
This is the after tax yield if they go in for high growth common stocks.
It is recommended that the Brittens invest their $40,000 in high growth common stocks because it gives them an after tax yield of $3400. This is the highest yield among all the suggested options.
here is what to consider: Reasonable portfolio structure noted by you. Here are selected solutions:1. After-tax yield Condominium, 5%;Municipal bonds, 5%;Dividends, 5.76% = (8% x (1-.28)); Interest income, 2.16% = (3% x (1-.28)); High growth common stock, if long term gain, 8.5%.2. The answer really depends upon the ...