5. Twins Invest. Janet Brooks, of Amarillo, Texas, plans to invest $3,000 each year in...
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5. Twins Invest. Janet Brooks, of Amarillo, Texas, plans to invest $3,000 each year in a mutual fund for the next 40 years to accumulate savings for retirement. Her twin sister, Rebecca, plans to invest the same amount for the same length of time in the same mutual fund. However, instead of investing with after-tax money, Rebecca will invest through an employer-sponsored tax-sheltered retirement plan. If both mutual fund accounts provide an 8 percent rate of return, how much more will Rebecca have in her retirement account after 40 years than Janet? How much will Rebecca have if she also invests the amount saved in income taxes? Assume both women pay income taxes at a 25 percent rate.
N
40
I/Y
8 x (1 - 0.25) = 6
PV
0
PMT
-3,000
FV
CPT
N
40
I/Y
8
PV
0
PMT
- [3,000 + (3,000 x 0.25)] = -3,750
FV
CPT
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