Assume you paid a higher tax on income than on capital gains. Furthermore, assume that you…

Assume you paid a higher tax on income than on capital gains. Furthermore, assume that you…

Assume you paid a higher tax on income than on capital gains. Furthermore, assume that you believed that prices were determined by the post-tax CAPM. Now another investor comes along who believes that prices are determined by the pretax CAPM. Demonstrate that you can make an excess return by engaging in a two-security swap with him.

 

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