Oh thanks so much. Yes, I like to understand how you came with the answer as I am doing the problem myself. I am glad you like my attitude.
I believe I missed some information... but here is the whole problem
A taxpayer is considering three alternative investments of $10,000. Assume the taxpayer is in the 28% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end of five years. The alternatives are:
•A taxable corporate bond yielding 5% before tax and the interest can be reinvested at 5% before tax.
•A Series EE bond that will have a maturity value of $12,200 (a 4% before-tax rate of return).
•Land that will increase in value.
The gain on the land will be classified and taxed as long-term capital gain. The income from the bonds is taxed as ordinary income.
How much must the land increase in value to yield a greater after-tax return than either of the bonds?
Given: Compound amount of $1 and compound value of annuity payments at the end of five years.
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$1 Compounded for 5 years
$1 Annuity Compounded for 5 years