Muppers3262
New member
- Joined
- Oct 13, 2005
- Messages
- 19
I have completed this math problem which states:
No income tax is due on the interest earned in some types of investments. You deposit $25,000 into an account. Which plan produces a larger balance in 40 years (after taxes)?
(a) Tax-Free: The account pays 5% compounded annually. There is no income tax due on the earned interest.
(b) Tax-Deferred: The account pays 7% compounded annually. At maturity, the earned interest is taxable at a rate of 40%.
I did the problem out by hand, but I also need to graph it on my calculator, but I don't know what my windows should be and how I would prove that the two amounts are true on the calculator. Please help if able to do so, I tried to plug in the equation and fixing my windows, but I never get the whole graph for both equations.
This is what I got for (a).
A= P(1+r/n)^nt
A= $25000 (1+ .05/1)^(1*40)
A= $175,999.72
This is what I got for (b).
A= P(1+r/n)^nt
A= $25000 (1+ .07/1)^(1*40)
A= $374,361.45
Final Amount= $374361.45 - (.4*374361.45)
Final Amount= $224,616.87
This would make the tax-deferred plan a better investment than the tax free plan. I'm sorry this is so long. Thank you for your help!
No income tax is due on the interest earned in some types of investments. You deposit $25,000 into an account. Which plan produces a larger balance in 40 years (after taxes)?
(a) Tax-Free: The account pays 5% compounded annually. There is no income tax due on the earned interest.
(b) Tax-Deferred: The account pays 7% compounded annually. At maturity, the earned interest is taxable at a rate of 40%.
I did the problem out by hand, but I also need to graph it on my calculator, but I don't know what my windows should be and how I would prove that the two amounts are true on the calculator. Please help if able to do so, I tried to plug in the equation and fixing my windows, but I never get the whole graph for both equations.
This is what I got for (a).
A= P(1+r/n)^nt
A= $25000 (1+ .05/1)^(1*40)
A= $175,999.72
This is what I got for (b).
A= P(1+r/n)^nt
A= $25000 (1+ .07/1)^(1*40)
A= $374,361.45
Final Amount= $374361.45 - (.4*374361.45)
Final Amount= $224,616.87
This would make the tax-deferred plan a better investment than the tax free plan. I'm sorry this is so long. Thank you for your help!
