Question

Taking all taxes into account, which of the investment alternatives will provide the highest after-tax cash flow of income to be used towards the vacation home at the end of year five? Assume the client lives in a state that does not impose a personal income tax.

Future value factors of interest (5%)

Single sum                  1.217

Annuity                       5.525

Nina is a taxpayer in the top tax bracket. She has a sum she wishes to invest for five years, and then she will use the net value (after all taxes) for her planned vacation home. Her investment choices are as follows:

• Corporate bond fund paying 25,000 per year
• City of Rochester bond paying 16,000 per year
• Mutual fund (invested in US companies) paying 22,000 dividends per year
• Growth stock, no dividends, but expected gain at end of five years of 125,000

Answer 1

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