To compute the effect of taxes on returns you do have

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Unformatted text preview: he would have to pay taxes on both dividends and the price appreciation each year. Figure 2.9 shows the effect on the portfolio value over the period and the effect of taxes on the ending portfolio: 38 Figure 2.9: Value of $ 100 invested in Stocks: Before and After Taxes $180,000.00 $160,000.00 Value of $ 100 invested in stock before taxes Value of $ 100 invested in 1928 $140,000.00 $120,000.00 Lost due to taxes $100,000.00 Before taxes After taxes $80,000.00 $60,000.00 $40,000.00 Value of $ 100 invested in stock after taxes $20,000.00 19 19 28 31 19 34 19 37 19 40 19 43 19 46 19 49 19 52 19 55 19 58 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 $0.00 Year Data from Federal Reserve: The graph measures the cumulated value of $ 100 invested in stock in 1928, including dividends and price appreciation. Note that introducing taxes into returns reducing the ending value of the portfolio by more than two thirds from $125,598 to $39,623. If taxes affect all investments, you may wonder why its effe...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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