Matt recently deposited $26,000 in a savings account paying a guaranteed interes

Question

Matt recently deposited $26,000 in a savings account paying a guaranteed interest rate of 6 percent for the next 10 years. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) Required: If Matt expects his marginal tax rate to be 30.00 percent for the next 10 years, how much interest will he earn after-tax for the first year of his investment? How much will he have in the account after four years? How much will he have in the account after four years? How much will he have in the account after seven years?

Explanation / Answer

Question - 1 How much interest will he earn after-tax for the first year of his investment?

Deposit = 26000

Interest = 6 %

Earnings for first year ( Before tax) = 26000 * 0.06 = 1560

Earnings for first year ( After tax ) = 1560 * (1 - tax rate) = 1560 * ( 1 - 0.30) = 1092

Question - 2 ........How much will he have in the account after four years?

= Principle * (1+r)4 = 26000 * (1.06)4 = 32824.40

Question - 3 ........How much will he have in the account after seven years?

= Principle * (1+r)7 = 26000 * (1.06)7 = 39094.39

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