1. Under what circumstances would you expect the after-tax return from an investment in a capital asset to approach that of tax-exempt assets assuming equal before-tax rates of return?
2. Laurie is thinking about investing in one or several of the following investment options:
Corporate bonds (ordinary interest paid annually) Dividend-paying stock (qualified dividends)
Life insurance (tax-exempt) Savings account
Growth stock
a) Assuming all of the options earn similar returns before taxes, rank Laurie's investment options from highest to lowest according to their after-tax returns.
b) Which of the investments employ the deferral and/or conversion tax planning strategies?
c) How does the time period of the investment affect the returns from these alternatives?
d) How do these alternative investments differ in terms of their nontax characteristics?