Suppose you invest $100 000 in a mutual fund for 10 years. The fund earns6% pretax per year makes no annual distributions (and thus there is noincome to be taxed each year) and you sell the fund at the end of the 10years. You pay a 20% tax on capital gains and a 40% tax on ordinaryincome.What is the pre-tax total dollar accumulation at the end of 10 years?What is the after-tax total dollar accumulation at the end of 10 years?Suppose instead you invest the $100 000 in preferred stock paying 6% perannum with the dividend taxed at 20% per year (as dividends receive theirown tax preferred rate).What is the after-tax total dollar accumulation at the end of 10 years?
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