- Tax Planning
- Investments 1: Before you Invest
- Investments 2: Your Investment Plan
- Investments 3: Securities Market Basics
- Investments 4: Bond Basics
- Investments 5: Stock Basics
- Investments 6: Mutual Fund Basics
- Investments 7: Building Your Portfolio
- Investments 8: Picking Financial Assets
- Investments 9: Portfolio Rebalancing and Reporting
- Retirement 1: Basics
- Retirement 2: Social Security
- Retirement 3: Employer Qualified Plans
- Retirement 4: Individual and Small Business Plans
- Estate Planning Basics
Case Study #1 Answers
To calculate the after-tax return on each asset, determine the amount of taxes you will pay on each type of earning. Since you have not sold the assets, the only taxes you will pay will be taxes on distributions you have received. Subtract the amount of distribution taxes you must pay to find the amount of distributions you will get to keep and calculate the amount of return you will get to keep after taxes.
|
Funds End Begin ST LTCG Stock % Fund |
| NAV NAV distr. distr. distr. portfolio return |
|
Vanguard ST bond 10.25 10.000 .20 0.05 0.00 20% 5.00% % tax rate (all taxable) 0.39 0.24 After-tax return 10.25 10.000 .122 0.08 0.00 4.10% |
|
Fidelity 500 index 110.00 100.00 5.00 5.00 2.00% 50% 12.00% % tax rate (all taxable) 0.39 0.24 0.24% After-tax return 110.00 100.00 3.05 3.80 1.52% 11.52% |
|
Schwab small-cap 115.00 110.00 5.00 5.00 2.00% 10% 15.64% % tax rate (all taxable) 0.39 0.24 0.24% After-tax return 115.00 110.00 3.02 3.90 1.52% 12.29% |
|
Am. Muni bond 5.25 5.00 0.05 0.20 10% 10.0% % tax rate (fed tax-free) 0.09 0.09 0.09% After-tax return 5.25 5.00 0.046 0.182 9.55% |
|
Scudder T-bond 52.00 50.00 0.25 0.25 10% 5.00% % tax rate (state tax-free) 0.30 0.15 0.15% After-tax return 52.00 50.00 0.175 0.213 4.78% |
b. Bill and Sally’s portfolio return before tax is 10.06 percent or (.2 * .05 + .5 * .12 + .1 * .1564% + .1 * .10 + .1 * .05). Their portfolio return after tax is 9.24 percent or (.2 * .041 + .5 * .1152 + .1 * .1229 + .1 * .0955 + .1 * .0478).
