Program 1
$100,000 is invested for 10 years in various investments, during a period when the inflation rate is 4%. The investor is in the 28% Federal and 4% State tax bracket for ordinary income but taxed at a 15% Federal rate for dividend income. What is the future value of this investment, in today's dollars, in the following cases:
(i) The $100,000 is invested in a certificate of deposit that pays annual interest of 6%?
(ii) The $100,000 is invested in a stock that retains its share price and pays an annual dividend of 6%?
(iii) The $100.000 is invested in a municipal bond (on which no state tax is levied) that pays annual interest of 5%?
(iv) The $100,000 is invested in a tax-exempt bond (on which no federal or state tax is levied) that pays annual interest of 4%?
(v) The $100,000 is invested in a Treasury Inflation-Protected Security (TIPS) which returns 1% above the Consumer Price Index (which, in this case, is the inflation rate - 4%)?
(vi) The $100,000 is stored under the investor's mattress for 10 years?
(vii) The $100,000 is 'invested' in lottery tickets?
Problem 2.
How much principal must be invested today for 5 years. during a period when the inflation rate is 2%, if the investor is in the 25% Federal and 4% State tax bracket for ordinary income but taxed at a 15% Federal rate for dividend income, to accumulate 810.000 in the following cases:
(i) The principal is invested in a certificate of deposit that pays annual interest of 6%?
(ii) The principal is invested in a stock that retains its share price and pays an annual dividend of 6%?
(iii) The principal is invested in a municipal bond (on which no state tax is levied) that pays annual interest of 5%?
Problem 3.
A student whose parents live in California. but who attends college in Florida. learns that his grandparents bought him 5,000 shares in Target Corporation stock many years ago, when the shares traded at SI. The Federal capital gains tax rate is currently 18% and the California and Florida state (income) tax rates are 8% and 0% respectively. The student then sells the shares at today's market price (look it up!). How much total tax does he pay on this stock sale if he files his taxes: a) in California and b) in Florida?