MIS 4500 Lecture Notes - Lecture 15: Accrual, Modern Portfolio Theory

• School: University of Manitoba
• Department: Management Info. Systems
• Course: MIS 4500
• Professor: Pourang Irani

Document Summary

Lecture 15: taxes and private wealth management in a global context: Global tax structures: taxes on income: progressive or flat. Wealth-based taxes (property and on wealth transfers) Consumption taxes (sales taxes; value added taxes) Future value interest factor (if taxed annually): fvifi = [1 + r(1 ti)]n. Tax drag may exceed the tax rate: compounds over time. Tax drag increases as the investment return increases. For deferred taxation: fvifcg = (1+r)n [(1+r)n 1]tcg = (1+r)n(1-tcg) + tcg. If cost basis differs: fvifcgb = (1+r)n(1-tcg) + tcg (1 b)tcg = (1+r)n(1 tcg) + tcgb; b is the percentage basis to market value. Annual wealth-based taxes: fvifw = [(1+r)(1 tw)]n. Effective cgs tax rate: t* = tcg(1 pi pd pcg)/ (1 piti pdtd pcgtcg) Future after-tax accumulation for each unit of currency in a taxable portfolio: fviftaxable = (1 + r*)n(1 t*) + t* - (1 b) tcg.