Matt recently deposited $30,750 in a savings account paying a guaranteed interes
ID: 2569454 • Letter: M
Question
Matt recently deposited $30,750 in a savings account paying a guaranteed interest rate of 5 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 20.00 percent for the next 10 years, how much interest will he earn after-tax for the first year of his investment?
How much interest will he earn after-tax for the second year of his investment if he withdraws enough cash every year to pay the tax on the interest he earns?
How much will he have in the account after four years?
How much will he have in the account after seven years?
Explanation / Answer
Answer 1. After One year, Matt will earn = $30,750 X 5% X (1 - 20%) After One year, Matt will earn = $1,230 Answer 2. In Second Year, Matt will earn = $31,980 X 5% X (1 - 20%) In Second Year, Matt will earn = $1,279.20 or say $1,279 (Approx.) Answer 3. After 4 Years, Mat will have in Account = $30,750 X (1 + 5% X (1 - 20%))^4 After 4 Years, Mat will have in Account = $35,973.15 or say $35,973 (Approx.) Answer 4. After 7 Years, Mat will have in Account = $30,750 X (1 + 5% X (1 - 20%))^7 After 7 Years, Mat will have in Account = $40,464.90 or say $40,465 (Approx.)