You purchased a stock at the end of the prior year at a price of $86. At the end

Q: You purchased a stock at the end of the prior year at a price of $86. At the end

Answer: Return for the year = Dividend income + Capital gain on price increase = $2.30 + ($90 - $86) = 2.3 + 4 = $6.30 Calculation of after tax returns : Dividend amount = $2.30 Tax on dividend income = 15% = 0.15 Hence after tax Dividend income = 2.3 *(1-0.15) = $1.96 Capital gain on price increase = 90-86 = $4 Tax on capital gain =30% = 0.30 Capital Gain (Net of tax) = 4 * (1-0.30) = $2.80 Total after tax returns = $1.96 + $2.80 = $4.76

ID: 2648733 • Letter: Y

Question

You purchased a stock at the end of the prior year at a price of $86. At the end of this year the stock pays a dividend of $2.30 and you sell the stock for $90. 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?

Explanation / Answer

Answer:

Return for the year = Dividend income + Capital gain on price increase

= $2.30 + ($90 - $86)

= 2.3 + 4

= $6.30

Calculation of after tax returns :

Dividend amount = $2.30

Tax on dividend income = 15% = 0.15

Hence after tax Dividend income = 2.3 *(1-0.15) = $1.96

Capital gain on price increase = 90-86 = $4

Tax on capital gain =30% = 0.30

Capital Gain (Net of tax) = 4 * (1-0.30) = $2.80

Total after tax returns = $1.96 + $2.80 = $4.76

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You purchased a stock at the end of the prior year at a price of $86. At the end

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