Details: 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 = 2%.
? Municipal bonds – expected annual yield = 3%.
? High-yield corporate stocks – expected dividend yield = 5%.
? Savings account in a commercial bank-expected annual yield = 1%.
? High-growth common stocks – expected annual increase in market value = 6%; 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 Law108-27, 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.