Compound Net Annual Rate - CNAR

  

Categories: Metrics, Investing

Uncle Sam is a jerk sometimes. The government tells Americans how important it is to save. So, after years of saving your money in a bank account, letting interest accumulate and building wealth...the government takes a cut out of the interest you earned in taxes from the bank they bailed out with taxpayer money in 2008.

The compound net annual rate is the percentage of money you earned on an investment after Uncle Sam takes his cut. So, if you invest $100 into an account, and you receive 4% a year on an investment, you’ll get $4. But if Uncle Sam takes $1 in taxes, suddenly you have just $3 per year, or a 3% return. Thanks a lot, Obama.

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Finance: What is Imputed Interest Rate?1 Views

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Finance allah shmoop What is imputed interest rate Imputed guest

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at or presumed based on x y and z that's

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the foundation of an imputed interest rate and its chief

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cheerleader Yep It's the i r s the tax people

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those guys you just love to hear from Why Well

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because taxes need to be collected Right We have pork

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to buy for politicians Come on people Get with it

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So we have a zero coupon bond here We bought

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for five hundred bucks which comes do or pays off

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in ten years for a thousand dollars on lee Remember

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Zero coupon bonds don't pay any interest along the way

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They just pay a one time end of period amount

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which includes interest and principal The irs taxes Bondholders imputed

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interest Yes like gains based on whatever interest rate is

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imputed by the terms of the deal So in this

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case remember that rule of seventy two thing so many

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years to doubled about it into seventy two and all

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that Yeah So in this case the money takes ten

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years to double that's ten into seventy two paying seven

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point two percent interest per year Compound it So the

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irs would take as an imputed interest Five hundred box

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times seven point two which is thirty six dollars of

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taxable imputed interest games And they would take that each

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year and you'd pay that each year on your taxes

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So if you owned this bond and we're living in

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a forty percent marginal tax bracket blue state which you

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livin bitterly even though you got no cash interest from

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this bond will you'd suffer a cash tax hit of

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forty percent of thirty six or a bit under fifteen

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dollars each year as you went along So that's the

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bad news you pay the cash up front The good

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news is that when the bond finally came do that

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decade later for that grand well you have already paid

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the taxes along the way And when taxes are already 00:02:01.504 --> [endTime] paid well we impute you'll be a happier camper

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