Hong Jun invested $10,000 in the stock market and earned a before-tax return of 30% on his investment. The relevant tax rate for his capital gain income was 15%. What was Hong Jun's
After-tax return?

Question

Quizplus · Accepted Answer

Hong Jun's before-tax return was 30%, so his capital gain income was $10,000 x 30% = $3,000.
His tax liability for his capital gain income was 15% x $3,000 = $450.
Therefore, his after-tax return was ($3,000 - $450) / $10,000 = 0.255 or 25.5%. Hong Jun's before-tax return was 30% on $10,000, which is $3,000.

His capital gains tax is 15%, which means he would need to pay $450 ($3,000 x 15%).

Therefore, his after-tax return would be $2,550 ($3,000 - $450) on a $10,000 investment, which is equal to 25.5%.

Hong Jun Invested $10,000 in the Stock Market and Earned