2. Hayley recently invested $22,000 in a public utility stock paying a 2 percent

Question

2. Hayley recently invested $22,000 in a public utility stock paying a 2 percent annual dividend. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) a. If Hayley reinvests the annual dividend she receives net of any taxes owed on the dividend, how much will her investment be worth in six years if the dividends paid are qualified dividends? (Hayley’s marginal income tax rate is 28 percent.) b. What will her investment be worth in six years if the dividends are nonqualified?

Explanation / Answer

a Annual after-tax rate of return = 2%*(1-0.15)= 1.70% Investment worth = 22000*(1.017)^6= 24342 b Annual after-tax rate of return = 2%*(1-0.28)= 1.44% Investment worth = 22000*(1.0144)^6= 23971

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