Question

A town is deciding between alternatives on additional hospitals funding. There are four options which come with corresponding tax increases: H (highest level funding), M (medium level), L (low level) and N (no additional funding).

There are three groups of voters in the town. The rst group is Elderly people who need hospital services most, the second group is Young people who need hospital services the least but also don't want the low quality hospitals for the future. The third group is Rich people who prefer to use medical care in other towns with better quality or to nance only high quality hospitals in home town. The preferences of three groups are summarized in the Table 3.

Table 3: Preferences

        Old Young Rich

1st      H       L    N

2nd      M     M H

3rd        L     N L

4th        N     H         M

(a) What is the outcome of the pairwise majority voting in this town?

(b) Do the results of the majority voting satisfy transitivity? Is there an overall winner?

(c) Are preferences of the voters single-picked?

(d) Now suppose that instead of the rich group we have middle aged group with preferences speci ed in Table 4. Answer questions (d) - (f) under these new preferences.

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Table 4: Preferences (2)

        Old Young Middle

1st   H L          M

2nd M       M         H

3rd   L    N          L

4th    N       H    N

What is the outcome of the pairwise majority? Is there an overall winner? (e) Who is the median voter in this case?
(f) Does the result of the median voter theorem hold in this case?

Answer 1

NAVPS : The Net Asset Value Per Share (NAVPS) is the value of one share of a mutual fund.

The Capital Gains are the result of selling of shares by the fund.

Ans to Que 2 : Capital Gains distributions leads to fall in the NAVPS because the people who buy fund shares after the date of distribution are not entitled to the distribution.

Tax Implications: The Capital gains are taxable in the hands of shareholders and they have to report the gain in their tax return.

Ans to Que 3: The investor has to pay the tax as per the nature of distributions even if the distributions are reinvested in the non registered funds.   

Ans to Que 4: Yes, the investor has to report a capital gain of $7,000 becasue capital gain is calculated on the basis of value of units at the time of sale and its purchase. The dividend receivd during the holding period has already been added to the valuation of units as the NAVPS of unit is calculated every single day.