Investments.

May 31st, 2016
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Investments. Charles Benson. Week 2. FIN3501.

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Investments1JKInstructor Charles BensonInvestmentsOctober 25, 2015InvestmentsInvestments4. You are in the 25 percent income tax bracket. What are the taxes owed or saved if youa) Amounts contributed are not subject to taxes so 2000*.25 = $500 tax savingsb) No deduction for ROTH IRA contributions. No tax owed or savedc) IRA withdrawals are taxable. $2000*.25 = $500 tax dued) Keogh withdraws are taxable $2000 * .25 = $500 tax due5. Your traditional IRA account has stock of GFH, which cost $2,000 20 years ago whenyou were 50 years old. You have been very fortunate, and the stock is now worth $23,000.You are in the 35 percent income tax bracket and pay 15 percent on long-term capitalgains.a) What was the annual rate of growth in the value of the stock?A = P (1 + r/n)^(nt)23000 = 2000 (1 + r)^20Divide by 2000:23/2 = (1 + r)^20Raise both sides to the 1/20 th power:(23/2)^(1/20) = 1 + rr = (23/2)^(1/20) - 1Use your calculator:r 0.12988668820156 12.99%b) What are the taxes owed if you withdraw the funds?23000*0.35 $8,050 in taxes because IRA distributions are treated as ordinary income and theoriginal amount invested was not taxed.2Investments37. You are 60 years old. Currently, you have $10,000 invested in an IRA and have justreceived a lump-sum distribution of $50,000 from a pension plan, which you roll over intoan IRA. You continue to make $2,000 annual payments to the regular IRA and expect toearn 9 percent on these funds

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