Pretax rate of return

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Pretax rate of return

Gain on a security before taxes.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Pretax Rate of Return

The rate of return on an investment before capital gains or other taxes. Most of the time, when one sees a calculation of the rate of return it is the pretax rate of return. For a tax-free investment, the pretax and post-tax rates of return are identical.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
where p~ is the cost of capital (pre-tax rate of return on investment) defined as:
Just compare the current pre-tax rate of return to the return an investor would otherwise seek.
Scottish and Southern Energy complained earlier this month that the 4.7 percent pre-tax rate of return allowed by Ofgem on investments in local electricity networks was below the 5.1 percent permitted for water utilities.
Next, compare that scenario with rolling over the stock into an IRA, selling it tax-free inside the IRA, assuming a suitably higher pre-tax rate of return, and paying taxes on the mandatory distributions starting at age 70 1/2.
All else equal, a bank that holds a large amount of tax-advantaged securities may have a relatively low pre-tax rate of return but a relatively high after-tax rate of return.
This combination may result in distortions in the after-tax rate of return differentials (i.e., in after-tax rate of return differentials not corresponding to pre-tax rate of return differentials).
That is, take the mutual fund with the highest pre-tax rate of return and pair it with the mutual fund with the second highest pre-tax rate of return.
Gravelle (1994) characterizes a tax rule as neutral when an investment's after-tax rate of return equals the product of its pre-tax rate of return and 1 - t, where t is the statutory tax rate.
The ETR is obtained as the difference between the pre-tax rate of return and the post-tax rate of returns (tax-wedge concept) and expressed as a percentage of the real pre-tax return on the investment.
It confers a post-tax rate of return on saving equal to the pre-tax rate of return. An individual earning 100 can choose either to spend now, paying 25 of tax and consuming goods worth 75, or to save now and consume goods worth 120.79 in five years 1120.79 is simply 75 multiplied by (1.1)[5].
This article assumes that stocks earn a 10.5% annual return, the pre-tax rate of return earned on stocks from 1926-1997.(5) While this is a historically higher annual return than on bonds, stocks have greater volatility.