Question on Personal Finance Concepts

Topic : Jobs and Growth Tax Relief Reconciliation Act

Question : 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 = 5%.
• Municipal bonds - expected annual yield = 5%.
• High-yield corporate stocks - expected dividend yield = 8%.
• Savings account in a commercial bank-expected annual yield = 3%.
• High-growth common stocks - expected annual increase in market value = 10%; 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 Law 108-27, The Jobs and Growth Tax Relief Reconciliation Act of 2003).

Solution :
a)The yield on the Brittens' investment in condominium can be taken as zero since the investment is for personal use and as such no income will be derived out of it. The yield can be realised only on liquidation of the asset.
b) As regards other assets the after tax yields have been worked out as under:
(While arriving at the yield, it has been assumed that the entire 40000 is invested in a particular asset)
Asset Yield Tax After Tax
Municipal bonds 2000 560 1440
High-yield
corporate stocks 3200 896 2304
Savings account 1200 336 864
High-growth
common stocks 4000 1120 2880
c)The yield in respect of High growth common stocks would be realised only if the assets are liquidated.

Hope the explanation will be helpful for you.

Question on how to Solve the Probability

Topic : Probability

Question : How to calculate percentile rank for individualseries and group frequency distribution?

Answer :
Computing the Pth Percentile
1. Sort the data.
2. The Pth percentile is found in position P(n + 1)/100.
3. If this position is between observations round to the nearest position (or, if you know how, interpolate between the two).

Example
Let's find the 15th percentile of the starting salary data. Here's the sorted version.
08820 10800 12000 12500 13000 14000 15000 16000 16500 16600 16700 16900 16900 17000 17000 17600 17880 18000 18000 18000 18000 18000 18000 18000 18000 18000 18000 18500 18680 19100 20000 20000 20000 20000 20000 20300 20900 22000 23000 23000 23000 23000 23400 24000 25000 25000 26000 26000 27000 30000 30000 32500 37000 48000
Our position is 15(54 + 1)/100 = 15(55)/100 = 8.25. Round to position 8; the corresponding observation is shown in bold. The 15th percentile is approximately 16000.
A better approach uses interpolation. The 8.25 position is really between the 8 and 9 positions, One-quarter of the way from 16000 to 16500 is
0.75(16000)+0.25(16500) = 16125.
So 16125 is a (better) approximation to the 15th percentile. However, it's not that different from 16000, and either would suffice.

Hope the Explanation will be helpful for you.