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An investor earns 12.49 percent before tax and is subject to a 32 percent tax on such earnings. Calculate the investor's after-tax rate of return.

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briannacastaneda9012

Answer:

How do you calculate after tax rate of return?

After-tax return on investment is the net return to the investor after ordinary income and capital gains taxes are subtracted. This is calculated as: After-tax return on investment = ((P1 - Po) (1 - Tc) / Po) + C1(1 - To) / Po.

How do you calculate before tax return?

The pre-tax rate of return is calculated as the after-tax rate of return divided by one, minus the tax rate. For example, suppose a person obtains a 4.25% reporting rate for ABC shares and is subject to a 15% income tax. Therefore, the pre-tax rate of return is 5% or 4.25%/(1 - 15%).

How do you calculate real rate of return after tax and inflation?

To calculate the real rate of return after tax, divide 1 plus the after-tax return by 1 plus the inflation rate. Dividing by inflation reflects the fact a dollar in hand today is worth more than a dollar in hand tomorrow. In other words, future dollars have less purchasing power than today's dollars.      

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