Question

Luis Felipe purchased a share of a common stock for $22.00 ten days ago. Luis sells his share today at a price of $20.00. Also, during his investment, he received a dividend payment of $3.00. If dividends are taxed at 50.00% and capital gains are taxed at 30.00%, what is the after-tax holding period return for this investor? -1.90% after-tax return -2.27% after-tax return 2.27% after-tax return -3.11% after-tax return

Answer 1

Answer is option C

C. 2.27% after-tax return

Holding period return = (income + (end of period value - original value)) / original value) = ((3+(20-22))/22) = 4.54%

After tax holding period return = holding period return * (1-t)

Here t = 50% in case of dividend

After tax holding period return= 4.54%*(1-50%) = 2.27%