Problem 3 rate 4%)? (vi) The $10,000 is stored under the investor\'s mattress for 10 years? (vii) The $10,000 is \'invested\' in lottery tickets? For the purposes of clarification, income from certificates of deposit, bonds, and TIPS are considered ordinary income. Problem 2. How much principal must be invested today for 5 years, during a period when the inflation rate is 2%, if the investor is in the 25% Federal and 4% State tax bracket for ordinary income but taxed at a 15% Federal rate for dividend income, to accumulate $10,000 in today\'s dollars, in the following cases: The principal is invested in a certificate of deposit that pays annual interest of 6%? (ii) The principal is invested in a stock that retains its share price and pays an annual dividend of 6%? (iii) The principal is invested in a municipal bond (on which no state tax is levied) that pays annual interest of 5%? Problem 3. In an economic environment with no inflation, $10,000 is invested in a savings bond that yields 7% for years. For this particular bond, investor choice of paying tax on the bond income (28%) annually, deferring the until the the year, when tax (28%) is paid once on the entire 8-year accumulated income (but not original $10,000) from the bond. Which tax option should the investor choose, and what is the benefit in income? The answer to this question reveals a very important aspect of investment strategy. Solution.