Shelly Is in the 25 Percent Tax Bracket and Expects

Essay

Shelly is in the 25 percent tax bracket and expects to remain in that bracket in the future.She has $100,000 to invest for 5 years and has the following alternatives: (a)corporate bonds paying 7 percent; (b)tax-exempt bonds paying 4.5 percent; (c)land that is expected to increase in value to $140,000 in 5 years.Interest on either the corporate bonds or the tax-exempt bonds can be reinvested at 7 percent interest.Any gain on the sale of the land will be eligible for the 15 percent long-term capital gain tax rate.Calculate the after-tax return for each investment.Which investment do you recommend she choose?