Question

A taxpayer can invest $10,000 in a taxable 10-year bond that yields an annual pretax return of 6 percent or buy land (capital asset) for $10,000 that is expected to increase at an annual pretax return of 4 percent. The taxpayer expects to hold the bond and the land for 10 years and expects to pay tax on capital gains taxes of 25 percent throughout the 10-year period. Which investment is preferable?(This is the full question, no other material is needed to answer correctly)

Answer 1

value of investment in bonds over 10 year period	pv*(1+r)^n	10000*(1.06)^10	17908.48
capital gain	17908.48-10000	7908.48
after tax return over the period	capital gain*(1-tax rate)	7908.48(1-.25)	5931.36
value of investment in land over 10 year period	pv*(1+r)^n	10000*(1.04)^10	14802.44
capital gain	14802.44-10000	4802.44
after tax return over the period	capital gain*(1-tax rate)	4802.44*(1-.25)	3601.83
Bonds would be preferred as after tax return is higher than return from land