Investor palmer has a diversified portfolio consisting of equity and debt valued at $365,000 at the start of the year. during the year the portfolio returns $3,579 in dividends and $2,783 in interest income. the investor withdraws the interest income while reinvesting the dividends. at year-end the portfolio is worth $389,648. the investor's marginal tax bracket is 35%. without compounding, what is the investor's return after taxes?

The return after taxes is 7.9%

Explanation:

At the start of the year the portfolio is valued at $365,000.

At the end, his portfolio has returns by dividends ($3,579), interests ($2,783) and portolio's valuation (389,648-365,000=$24,648).

The tax is applied to the dividends and interests, as:

Tax = 0.35 * (3579+2783) = 0.35*6362 = $2,226.70

We can then calculate the investor's return as

R = profit after taxes / initial portfolio valuation

R = ((3579 + 2783 - 2226.70)+24648)/365000

R= 28,783.30 / 365,000 = 0.079 = 7.9%

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