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1. Timothy Clum is in the 25 percent tax bracket and is considering the tax consequences of investing $2,000 at the end of each year for 30 years, assuming the investment earns 8 percent annually.
If Timothy pays tax on the $2000 prior to each deposit into his investment, the value of his investment after 30 years will be $________.
Hint use this calculation-
FV of annuity = deposit amount * multiplier
2. What is the amount of earnings that Timothy gives up by not sheltering his investment from taxation as it grows? What is the difference between what he will earn by deferring taxes and what he will earn by paying taxes prior to deposit?
Once you have determined the correct answer to the future value of each investment scenario, calculate the difference between the two.
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