The tax rate is 34%. An investment of $5,000 earns a pre-tax return equal to 8%, which is taxable each year. What will the investment be worth in ten years after taxes?
An investor holds the same investment in three different accounts. Which of the following accounts will have the lowest risk?
A)
A TDA.
B)
A tax-exempt account.
C)
A taxable account.
The taxable account will have the lowest risk because the government essentially shares the risk of the investment with the investor when it is taxed annually. When taxed annually, the standard deviation of the investment returns is reduced by (1– TI).
The nation of Pensacola is best described as having a flat and heavy tax regime. Which of the following assets would be most appropriate for Pensacola investors using a TDA?
A)
High dividend yielding stocks.
B)
Tax-exempt bonds.
C)
Interest bearing, taxable bonds.
In a Flat and Heavy Tax Regime, interest income receives favorable tax treatment but dividends do not. The high dividend yielding stocks are therefore most appropriate for a TDA. Tax-exempt bonds don’t require the tax protection provided by a TDA.
All else being equal, which of the following investors will have the highest future accumulations?
A)
A passive investor.
B)
An active investor.
C)
A trader.
The passive investor will pay a low tax rate on a deferred basis and have the highest accumulation of the three investors. The active investor will have the next lowest future accumulation because although gains are taxed at a lower rate, the gains are taxed every year. The trader will have the lowest future accumulation because her capital gains will be short-term and taxed at a high rate. The gains will also be taxed every year.
A stock is expected to increase in value from $500 to $1,000 over a five-year period. The applicable capital gains tax rate is 28%. What is the expected after-tax value in five years?
A)
$781.
B)
$860.
C)
$552.
The pre-tax investment return is 14.87% =($1,000/$500)(1/5) – 1.
The formula for the future-value interest rate factor is FVIFCGT = [(1 + R)N(1 – TCG) + TCG]
1.72 = [(1.1487)5 (1 – 0.28) + 0.28]. Thus, the after-tax value in five years is expected to be $860 = $500 × 1.72.
An investor has €600,000 invested in equity in a TDA and €400,000 invested in bonds in a tax-exempt account. The relevant tax rate is 35%. What is the investor’s asset allocation on an after-tax basis?
A)
49.4% in stocks and 50.6% in bonds.
B)
44.9% in stocks and 55.1% in bonds.
C)
69.8% in stocks and 30.2% in bonds.
The investor has €390,000 [(€600,000 × (1 – 0.35)] invested in equity on an after-tax basis. The bonds in the tax-exempt account are not subject to taxation. On an after-tax basis, the investor has 49.4% in equity [390,000 / (390,000 + 400,000)] and the other 50.6% in bonds [400,000 / (390,000 + 400,000)].
Assume that €125,000 is invested in a TDA. What is the after-tax balance in the account after 15 years if the tax rate is 28% and the pre-tax return is 11%?
A)
€598,074.
B)
€430,613.
C)
€392,138.
The balance in the account after payment of taxes in 15 years uses the future value interest factor for a TDA (FVIFTDA):
FVIFTDA = (1 + R)N (1 − TN)
FV = 125,000[FVIFTDA]
FV = 125,000[(1.11)15(1 − 0.28)
FV = 430,613
Assume that €125,000 is invested in a tax-exempt account. What is the after-tax balance in the account after 15 years if the tax rate is 28% and the pre-tax return is 11%?
A)
€465,613.
B)
€598,074.
C)
€392,138.
The balance in the account in 15 years uses the future value interest factor for a tax-exempt account (FVIFTEA). No taxes are due on the future accumulation.
FVIFTEA = (1 + R)N
FV = 125,000[FVIFTEA]
FV = 125,000[(1.11)15]
FV = 598,074
The response of €392,138 is the future accumulation for an account taxed annually. The response of €465,613 is the future accumulation for an account with tax deferred capital gains and a basis of €125,000.
You compute that an investment with a current value and basis equal to $20,000 will have an annual return after realized taxes equal to 10% for the next 12 years until it is sold. The effective capital gains rate will be 15%. What will be the accrual equivalent after-tax return?
A)
8.50%.
B)
12.50%.
C)
9.02%.
The balance in the account after payment of all taxes in 12 years uses the future value interest factor after all taxes:Future value = $20,000 × [((1.1)12) × (1 − 0.15) + 0.15] = $56,353
The accrual equivalent after-tax return is then ($56,353 / $20,000)1/12 − 1 = 9.02%.
An investor deposited $33,000 in a zero coupon bond position 20 years ago. It consisted of 100 zero coupon bonds each with a face value of $1,000 and 20 years to maturity. The investor’s current marginal tax rate is 30%. At maturity, and after all taxes have been paid, the value of the position is $84,500. Compute the accrual equivalent after-tax return.
A)
4.33%.
B)
3.99%.
C)
4.81%.
The accrual equivalent after-tax return = 4.81% = ($84,500 / $33,000)(1/20) − 1. The current marginal tax rate is not relevant to solving the problem.
发表于 2012-3-23 13:08
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