Problem 2-10 You purchased a stock at the end of the prior year at a price of $9

Question

Problem 2-10

You purchased a stock at the end of the prior year at a price of $91. At the end of this year the stock pays a dividend of $1.70 and you sell the stock for $99. What is your return for the year? Now suppose that dividends are taxed at 15 percent and long-term capital gains (over 11 months) are taxed at 30 percent. What is your aftertax return for the year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

You purchased a stock at the end of the prior year at a price of $91. At the end of this year the stock pays a dividend of $1.70 and you sell the stock for $99. What is your return for the year? Now suppose that dividends are taxed at 15 percent and long-term capital gains (over 11 months) are taxed at 30 percent. What is your aftertax return for the year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Explanation / Answer

- Pretax return = (99 + 1.7 - 91)/91 = 10.66%

- Aftertax return = [1.7 x (1-0.15) + (99-91) x (1-0.30)] / 91 = 7.74%

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