Question

You purchased a stock at the end of the prior year at a price of $83. At the end of this year, the stock pays a dividend of $2.00 and you sell the stock for $95. 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 after-tax return for the year? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Pretax return After-tax return

Answer 1

Pre-tax Return = (95 - 83 + 2)/83

Pre-Tax Return = 16.87%

After-tax Dollar = (1 - 0.15)(2) + (1 - 0.30)(95 - 83) = $10.10

After-tax return rate = 10.10/83

After-tax return rate = 12.17%