Problem
For all questions assume the relevant tax rate is 30 percent and all annuities begin at the end of year 1.
A. The $30,000 of excess liquidity is earning 5 percent compounded monthly in a money market fund. This is 5.12 percent annualized return. How was this determined?
B. This annualized return of 5.12 percent results in an after-tax return of 3.58 percent since taxes on any interest must be paid each year. How was this determined?