What is the real investment value if an investor has a $5,000 pretax return, with state tax at 4.5% and federal tax at 22.0%?

To determine the real investment value after accounting for taxes, it's essential to calculate the net return after applying both state and federal taxes on the pretax return.

Start with the pretax return of $5,000. First, we apply the federal tax rate of 22%. The federal tax can be calculated as:

Federal tax = Pretax return × Federal tax rate

Federal tax = $5,000 × 0.22 = $1,100

After subtracting the federal tax from the pretax return, we have:

Amount after federal tax = Pretax return - Federal tax

Amount after federal tax = $5,000 - $1,100 = $3,900

Next, we apply the state tax of 4.5% to the amount remaining after the federal tax. The state tax is calculated as follows:

State tax = Amount after federal tax × State tax rate

State tax = $3,900 × 0.045 = $175.50

Now, subtract the state tax from the amount after federal tax to arrive at the net investment value:

Net investment value = Amount after federal tax - State tax

Net investment value = $3,900 - $175.50 = $3,724.