Question

Mark's average tax rate is 25% and his marginal tax rate is 35%. He plans to save $25,000 at the end of each year earning 6.5% a year for the next 19 years. If Mark invests in non-sheltered investments, how much will he have in 19 years?

a) $608,074

b) $573,937

c) $707,195

d) None of the above

e) $654,373

Answer 1

Investment at the end of each year = $ 25,000

Interest rate = 6.5%

As Mark invests in non-sheltered investments, his Interest rate after Marginal tax rate will be = 6.5%(1-0.35)

= 4.225%

No of years to Investment = 19

Calculating the Value of Investment in 19 years:-

Where, C= Periodic Payments = $ 25000

r = Periodic Interest rate = 4.225%

n= no of periods = 19

Future Value = $ 707,195.24

So, Mark will have $ 707,195.24 in 19 years

Hence, Option C

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