Ricky Ocasek acquired 3,000 units in the XLNT Sharemarket Fund ("XLNT") at the start of the year for $7.10 per unit. After holding the investment in XLNT for 6 months, Ricky has decided that he wants to go on an around-the-world holiday and will need to sell all of his units in order to pay for the holiday. The current unit price of XLNT is now $8.86 and the fund has also recently made an income distribution to unit holders of 40 cents per unit. In the constitution for XLNT it states that sales of units within 2 years of acquisition are subject to an exit fee of 5% of the market value at the time of sale. Ricky is subject to a marginal tax rate of 30% on all income and realised capital gains.
(a) What is the total initial investment amount made by Ricky in XLNT?
(b) What will be the exit fee if Ricky sells his total investment after 6 months?
(c) What will be the total pre-tax proceeds that Ricky will realise assuming the investment is sold after 6 months?
(d) What will be the pre-tax annualised absolute return to Ricky assuming the investment is sold after 6 months?
(e) How much tax will Ricky be liable for upon the current sale of his total investment in XLNT?
(f) What will be the total after-tax proceeds that Ricky will realise assuming the investment is sold after 6 months?
(g) What will be the after-tax annualised absolute return to Ricky assuming the investment is sold after 6 months?

Question

Quizplus · Accepted Answer

The Answer of Ricky Ocasek acquired 3,000 units in the XLNT Sharemarket Fund ("XLNT") at the start of the year for $7.10 per unit. After holding the investment in XLNT for 6 months, Ricky has decided that he wants to go on an around-the-world holiday and will need to sell all of his units in order to pay for the holiday. The current unit price of XLNT is now $8.86 and the fund has also recently made an income distribution to unit holders of 40 cents per unit. In the constitution for XLNT it states that sales of units within 2 years of acquisition are subject to an exit fee of 5% of the market value at the time of sale. Ricky is subject to a marginal tax rate of 30% on all income and realised capital gains.
(a) What is the total initial investment amount made by Ricky in XLNT?
(b) What will be the exit fee if Ricky sells his total investment after 6 months?
(c) What will be the total pre-tax proceeds that Ricky will realise assuming the investment is sold after 6 months?
(d) What will be the pre-tax annualised absolute return to Ricky assuming the investment is sold after 6 months?
(e) How much tax will Ricky be liable for upon the current sale of his total investment in XLNT?
(f) What will be the total after-tax proceeds that Ricky will realise assuming the investment is sold after 6 months?
(g) What will be the after-tax annualised absolute return to Ricky assuming the investment is sold after 6 months?

Ricky Ocasek Acquired 3,000 Units in the XLNT Sharemarket Fund