a) An investment of $1,000 earns annual interest of 5% (no capital gains). Assuming accrual taxes...

Transcribed Image Text:

a) An investment of $1,000 earns annual interest of 5% (no capital gains). Assuming accrual taxes of 30%, how much is the expected after-tax value of the investment in ten years? How much is the tax drag in percentage? b) Consider the following statements about an account subject to accrual taxes: Statement 1: As the investment horizon increases the tax drag increases. Statement 2: As the investment return increases the tax drag decreases. Which statement is correct? c) An investment of $1,000 earns an annual return of 9%, all of which is deferred capital gains. At a capital gains tax rate of 20%, determine which of the following is closest to the after-tax value of the investment in 10 years. How much is the tax drag in percentage terms? a) An investment of $1,000 earns annual interest of 5% (no capital gains). Assuming accrual taxes of 30%, how much is the expected after-tax value of the investment in ten years? How much is the tax drag in percentage? b) Consider the following statements about an account subject to accrual taxes: Statement 1: As the investment horizon increases the tax drag increases. Statement 2: As the investment return increases the tax drag decreases. Which statement is correct? c) An investment of $1,000 earns an annual return of 9%, all of which is deferred capital gains. At a capital gains tax rate of 20%, determine which of the following is closest to the after-tax value of the investment in 10 years. How much is the tax drag in percentage terms?

Answer rating: 100% (QA)

a The investment earns an annual interest of 5 so in ten years the investment will be worth 1000 1 0... View the full answer