Question

A corporation buys preferred stock at $67, holds it one year and sells it at $67 after collecting a $2 dividend. The firm's tax rate is 31%. The firm's after tax rate of return is

Answer 1

Ans $ 1.38

Po =	Purchase Price
P1 =	Sale Price
Total Return on Shares =	Dividend Income + (P1 - P0)
	2 + (67 - 67)
	2.00
Return after tax =	Return * (1 - Tax rate)
	2.00 * (1 - 31%)
	1.38