When an investor buys an asset to be kept for at least a year, the net...

Transcribed Image Text:

When an investor buys an asset to be kept for at least a year, the net cost is the reduction in what the investor can spend without reducing other wealth. For investments in some types of retirement accounts, the net cost of buying an asset is less than what the investor pays for the asset. Give an example of that type of retirement account and explain why and how the investor's net cost differs from the amount the investor pays for the asset. The gross after-tax rate of return from an investment is the gross after-tax return divided by the net cost of the investment. Explain how the US federal tax system makes the gross after- tax rate of return for some types of investments higher than if the investment was entirely. exempt from taxation (so that it received no favored treatment and no tax on any of its returns). When an investor buys an asset to be kept for at least a year, the net cost is the reduction in what the investor can spend without reducing other wealth. For investments in some types of retirement accounts, the net cost of buying an asset is less than what the investor pays for the asset. Give an example of that type of retirement account and explain why and how the investor's net cost differs from the amount the investor pays for the asset. The gross after-tax rate of return from an investment is the gross after-tax return divided by the net cost of the investment. Explain how the US federal tax system makes the gross after- tax rate of return for some types of investments higher than if the investment was entirely. exempt from taxation (so that it received no favored treatment and no tax on any of its returns).