increase by $4,000, which is the lesser of the following:
50%[$28,000 + 50%($10,000) – $25,000]
Therefore, the $8,000 gain will cause Sarah’s gross income to increase
by $12,000 ($8,000 + $4,000).
Roy is considering purchasing land for $10,000. He expects the land to appreciate in value 8% each year (compounded) and he will
sell it at the end of 10 years. He also is considering purchasing a bond for $10,000. The bond does not pay any annual interest, but
will pay $21,589 at maturity in 10 years. The before-tax rate of return on the bond is 8%. Roy is in the 40% (combined Federal and
State) marginal tax bracket. Roy has other investments that earn a 8% before-tax rate of return. Given that the compound interest
factor at 8% is 2.1589, and at 4.8% the factor is 1.5981, which alternative should Roy choose?
In January 2012, Tammy purchased a bond due in 24 months. The cost of the bond is $857 and its maturity value is $1,000. No
interest is paid each year, but the compound interest rate on the bond is 8%. Tammy also purchased a Series EE United States