In reading 11, Volume 2, example 2 and 3 on pages 241 and 243, why do we divide by 286968 to find the proportion of potential gains? Should it not be 386968 in the denominator in both instances?
Tax drag = gain lost due to taxes divide by gains if there were no taxes
Tax Drag= [FV(no tax)-FV(with tax)]/[FV(no tax)-Investment]
shouldnt it be [Profit(FV)no tax - Profit(FV)tax]/Profit(FV)no tax…
what is the profit() all about?
Alladin’s formula above is right.
It is [FV(No Tax) - FV (Tax)] / [FV(No Tax) - Initial Investment]
if you want to go the Profit route - I guess you can look at it as
Profit forfeited due to tax / Profit forfeited if there is no tax.
just looked at it, we get the same answer i was using a different formula.
No Tax FV= 1500 tax FV = 1200 investment = 100 my calc
No Tax Profit = 1400 tax Profit = 1100
Tax Drag = (1400 - 1100) / 1400 = 21.4%
(1500 - 1200) / (1500 - 100) = 21.4%
you realize that when you go the “Profit” route the initial value is being deducted (100 $) from each leg…
yea i do, i think the formula i used was from schweser, we end up with the same answer tho…
The underlying formula is very simple indeeed.
Required Proportion = Gain Lost/Total gain that could have been achieved.
Why there’s so much calculation or formula for this simple problem??
I think the question and its answer are overreacted/overvalued!!!
Does anyone think this type of stuff has ever been tested?