The state tax Patrick must pay on the initial profit is . The federal tax he must pay on the initial profit is . The inflation on the amount remaining after taxes is . As a result, the real value of Patrick’s profit is

The state tax Patrick must pay on the initial profit is $350. The federal tax he must pay on the initial profit is $1750. The inflation on the amount remaining after taxes is $147. As a result, the real value of Patrick’s profit is $4678

Explanation:

Patrick has successfully invested in a growing tech company. Three years ago he invested $10,000 in the company through a broker. Now he has decided to sell his stock. The value of his stock is now at $17,000. Here are the taxes and fees associated with his investment: Annual brokerage fee: $25 State tax: 5% of profit Federal tax: 25% of profit Inflation rate: 1% per year The state tax Patrick must pay on the initial profit is . The federal tax he must pay on the initial profit is . The inflation on the amount remaining after taxes is . As a result, the real value of Patrick’s profit is .

Patrick invested $10000 and after three years the value of his stock is $17000.

Profit = Value of stock - Amount invested = $17000 - $10000 = $7000

Total brokerage fee = Annual brokerage fee × number of years = $25 × 3 = $75

State tax = 5% of profit = 5% of $7000 = 0.05 × $7000 = $350

Federal tax = 25% of profit = 25% of $7000 = 0.25 × $7000 = $1750

Profit after tax = $7000 - $350 - $1750 = $4900

Inflation on the amount remaining after taxes = 1% of profit after tax × number of years = 3 years × (0.01 × $4900) = 3 × $49 = $147

Therefore the real value of profit = Profit - Total brokerage fee - state tax - federal tax - inflation = $7000 - $75 - $350 - $1750 - $147 = $4678

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