Question

If an investor has a $5,000 pretax return, the state tax rate is 4.5%, and the federal tax rate is 22.0%, what is the real investment value? $1,325 $3,675 $3,900 $4,775

Answer 1

Based on the given parameters, the real value of the investment is $3675

How to determine the value of the investment?

From the question, the given parameters about the investment are:

Pretax return = $5,000

State tax rate = 4.5%

Federal tax rate = 22.0%

The real value of the investment is calculated using the following formula

Real investment value = Pretax return - [(Pretax return * State tax rate) * Pretax return * Federal tax rate)]

Substitute the given values in the above equation.

Real investment value = 5000 - [(5000 * 4.5%) + (5000 * 22.0%)]

Evaluate the products

Real investment value = 5000 - [225 + 1100]

Evaluate the sum in the above equation

Real investment value = 5000 - 1325

Evaluate the difference in the above equation

Real investment value = 3675

Hence, the real value of the investment is $3675

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