This annualized return of 512 percent results in an


Problem

For all questions assume the relevant tax rate is 30 percent and all annuities begin at the end of year 1.

A. The $30,000 of excess liquidity is earning 5 percent compounded monthly in a money market fund. This is 5.12 percent annualized return. How was this determined?

B. This annualized return of 5.12 percent results in an after-tax return of 3.58 percent since taxes on any interest must be paid each year. How was this determined?

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Accounting Basics: This annualized return of 512 percent results in an
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