Reading 11 Question 8

[qorghdud]

Anyone also confused about this question? I think i understand the tax drag on the return, but not sure why we should be using the capital gains formula w/ T* which doesn’t make sense to me. Please help!
and will the actual exam questions be this difficult??

 

[harryy02]

taxes questions are always somehow challenging indeed.
think you should try and be familiar enough with the various formulae. would help enough!! all the best!!

 

[janakisri]

The T* is an effective capital gains tax rate on accumulations after (yearly ) taxes on dividends , income and annual realized gains have been deducted.
If you don’t deduct the 3 terms ( dividend tax , yearly-income tax and annual-realized gains tax) , you would be double counting these , because they are not part of the end of term accumulation of gains.
sorry if I’m just restating what is already in the text regarding T*