Question

What are the After-tax annualized returns from the following two funds if you invest $1000 in each of them? Assume: You invest for 4 years (hold investments till end of 4th year) and sell your shares at the beginning of 5th year. Tax rate is 25%.

1. Fund B: Distributes 5% Distributed Income return per period.

              Provides 5% Capital Gain Return Per Period.

Answer 1

Fund A: Distributes 5% Distributed Income return per period.

After Tax Annualised Return = $150/4 = $37.5 or 3.75% ($37.5/$150 x 100)

Fund B:Provides 5% Capital Gain Return Per Period.

There fore After Tax Annualised Return = $40.41 or 4.041% ($40.41/$1000 x 100)