You purchased a stock at the end of the prior year at a price of $99. At the end

Question

You purchased a stock at the end of the prior year at a price of $99. At the end of this year the stock pays a dividend of $2.00 and you sell the stock for $100. 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 $99. At the end of this year the stock pays a dividend of $2.00 and you sell the stock for $100. 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

Stock price =$ 99

Divedend= $ 2.00

Selling price of the stock=$ 100

capital gain on the stock= $ 100-$ 99=$ 1

total gain = dividend+ capital gain

$ 2+$ 1=$ 3

pretax return = 3/99 *100= 3.03%

after tax return= $ 2*(1-15)+ $1(1-30)

$ 2*.85+$ 1*.70 = $ 1.7+$ 0.70=$ 2.40

$ 2.4/$ 99*100 = 2.42%

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