Lower tax bracket., Public Economics

Jenna's boss has decided to pay her a one-time bonus of $5,000. She decides to save the money until she retires, 4 years from now. She contemplates two savings options. Option A is to save the money for four years outside of an RRSP in a
foreign corporate bond that will pay her 10 percent per year. Option B is to save for four years in an RRSP account with a domestic government bond that will pay her 8 percent per year. The marginal income tax rate that Jenna faces while she is working is 30 percent. When she retires her marginal tax rate will drop to 25 percent, as she will be in a lower tax  bracket. As her financial advisor, which option do you recommend? (Answer this by calculating the net amount of her bonus upon cashing in the investment at her retirement.

Posted Date: 3/16/2013 1:13:39 AM | Location : United States







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