Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, wh
1 answer:
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Answer:
after tax real rate of capital gain = - 30%
so correct option is B. -30 percent
Explanation:
given data
bought land = 20,000 foci
price Index = 100
sold land = 100,000 foci
price index = 600
tax rate = 20 percent
to find out
Compute the taxes on the nominal gain and the change in the real value of the land and after-tax real rate of capital gain
solution
first we get here tax on nominal gains that is express as
tax on nominal gains = tax rate × gain
tax on nominal gains = 20% × ( 100,000 - 20,000 )
tax on nominal gains = 16000 foci
and
Real gain is here as
Real gain = sold land - price index ( bought land )
Real gain = $100,000 - 6 ( 20000)
Real gain = - $20000 foci
and
now after tax real rate of capital gain will be here as
after tax real rate of capital gain = (Real gain - tax on nominal gains ) ÷ ( sold land - real gain ) × 100
after tax real rate of capital gain = × 100
after tax real rate of capital gain = - 30%
so correct option is B. -30 percent