can some one help me with my homework?

Question

i know when people ask help for homework they get alot of flack. but can someone please help?





Bernie and Pam Britten are a young married couple beginning careers and
establishing a household. They will each make about $50,000 next year
and
will have accumulated about $40,000 to invest. They now rent an
apartment
but are considering purchasing a condominium for $100,000. If they do,
a
down payment of $10,000 will be required.
They have discussed their situation with Lew McCarthy, an investment
advisor
and personal friend, and he has recommended the following investments:
•The condominium - expected annual increase in market value = 5%.
•Municipal bonds - expected annual yield = 5%.
•High-yield corporate stocks - expected dividend yield = 8%.
•Savings account in a commercial bank-expected annual yield = 3%.
•High-growth common stocks - expected annual increase in market value
=
10%; expected dividend yield = 0.
1.Calculate the after-tax yields on the foregoing investments,
assuming the
Brittens have a 28% marginal tax rate (based on Public Law 108-27, The
Jobs
and Growth Tax Relief Reconciliation Act of 2003).
2.How would you recommend the Brittens invest their $40,000? Explain
your
answer.
SHOW ALL WORK FOR EACH ASSIGNMENT AND EXPLAIN EACH STEP CAREFULLY.

Answer 1

Trick Question-- The right answer is none of the above.

They should use the 40 k to put down on a 200k house/condo they would have a lot more "leverage," than with the other investments with 40 K down they wouldn't have to pay PMI. They would be getting the 5% on the 200,000, even though they are only "investing" 40,000. The interest they pay would lower their taxes. They would be paying less than 1000/month for mortgage (p+i) which is probably less than they'd pay for rent. So that would be the "best," solution

Answer 2

Tell your teacher he did not give you enough information to correctly do this. 1) condo - 5% gain, after tax return, depends what is the property, school, and utility tax you have to pay? What is the interest on the mortgage? You can get a tax break on that. Municipal bonds - no income tax on most of them but, there could be capital gains tax or atm tax if the bonds are used to pay for a private team's sports stadium or dorms for a private college. High yield corporate stocks - 8% dividend yield - if they are from Income trusts like REITS some of the dividend will be taxed at 28% so 8% X 28% = 2.24 sub from 8% = 5.76%. But some of that dividend is usually reclassified at the end of the year to capital gains (both taxed at 28% and 15%) and return of principal (taxed when sold or when cost basis reach $0 at 15% is stock is held over one year, 28% is held under one year). Another thing is what is the increase of value (capital gains) of these stocks. Last year, my REIT fund had a gain of over 27%. So once again, not enough information. Savings account 3% X 28% = 0.84 substracted from 3% = 2.16%
high growth common stock - again if held a year or more 15% tax, if held less than one year 28% tax. 10% X 28% = 2.8 sub.from 10% = 7.2%. 10% X 15% = 1.5 sub. from 10% = 8.5%.
2) Need more information about the Brittens risk tolerance (high growth common stocks with 8.5% after tax yield seem to be the best but high growth can quickly turn to high loss, think Enron, MCI, JDS, Corning), goals for the money (how long are they going to invest it for?). Therefore my answer is: none of the above. PS: I was in the 7th grade about 49 years ago so your question is not so hard for me.

Answer 3

I wish i could help but your homework is way too freaking hard. I'm only in the 7th grade gosh!