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Assume Sandy estimates she can earn a 6% before-tax rate of return on the proceeds from cashing in the policy.

Assume she can earn a 6% return for the remainder of her life and that she will reinvest all earnings at the same 6% before-tax rate of return. If Sandy expects to live 10 more years, which alternative will yield the greater amount to her beneficiaries upon her death? (Given: The future value of an annuity in 10 years assuming a 4.32% after-tax return is 12.19. The future value of an annuity in 10 years assuming a 2.16% return is 11.03).Tax law/accounting chapter 5 gross income. Question 99 part b I'm stuck in how to arrive at the answer.

Am I on the right track with this first part? What are the next steps?


Surrender value 6% x 10 years                                                                                   6,000

After-tax rate 4.32% x 10 years                                                                                 4,320

Annuity factor: 4.32% @ 10 years

(After-tax return = 6 (1-0.24)                                                                                     7.89

                                                              

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