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Great analysis. One quibble. Wouldn't the return for B be even lower than you calculated because B actually invests more than $100,000? As the scenario is laid out by the original poster, there is no money to pay the $8000 in taxes due the first year.

True, the gross profit calculations do nopt take into consideration the time value of money. The internal rate of return calculation takes into account the timing of the inflows and outflows into each year. Thus it takes in consideration the $8000 at the appropriate time(end of year 1).

It is worth noting that despite assuming no transaction costs due to commissions and bid-ask spreads, and large pre-tax gain, the average of B and C together is equal to A, i.e. the market timer must average $12,500 pre tax gain in year to break even after taxes.

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