Investment M odels. David can make a single investment in
one of three alterna tives. The first investment conforms to the Current Model,
the second investment conforms to the Deferred Model, and the third investment
conforms to the Pension Model. The investment horizon is seven years, and the
BTROR for each alternative is 10% . David will incur no penalties upon
withdrawal.
a. Assuming David’s tax rate will be 15% for all seven
years, what is the accumu lation and annua lized ATROR for each investment?
Which alterna tive should David choose?
b. Assuming David ‘s tax rate will be 15% for the first six
years but will be 25% in the seventh year, what is the accumu lation and
annualized ATROR for each investment? Which alternative should David choose?
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