After reading this chapter, it isn\'t surprising that you\'re becoming an invest

Question

After reading this chapter, it isn't surprising that you're becoming an investment wizard. With your newfound expertise you purchase 100 shares of KSU Corporation for S25.53 per share. Over the next 12 months assume the price goes up to $32.82 per share, and you receive a qualified dividend of $0.65 per share. What would be your total return on your KSU Corporation investment? Assuming you continue to hold the stock, calculate your after-tax retun. How is your realized after-tax return different if you sell the stock? In both cases assume you are in the 25 percent federal marginal tax bracket and 15 percent long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income. Your total rate of return on your KSU Corporation investment is 31.10 %. (Round to two decimal places.) Assuming you continue to hold the stock, your after-tax rate of return is %. (Round to two decimal places.)

Explanation / Answer

If continue to hold the stock after tax return would be Dividend Received per share 0.65 Tax at 25% 0.1625 Post tax return 0.4875 Purchase price 25.53 After tax rate of return.4875/25.73 0.019095 or 1.91% Investment has increased since the day shares have been bought, but gains will not be realised until shares have been sold. As a general rule, you don't pay any tax until you've realized a gain. After all, you need to receive the cash made from selling at least part of your investment in order to pay any tax Read more: Capital Gains Tax 101 | Investopedia https://www.investopedia.com/taxes/capital-gains-tax-101/#ixzz51WdRmuhQ Follow us: Investopedia on Facebook

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