Question

In Fundamentals of Investments: Valuation and Management 7th edition, I don't understand how to solve this question on page 73. 10QP: "You purchased a stock at the end of the prior year at a price of $73. At the end of this year the stock pays a dividend of $1.20 and you sell the stock for $78. What is your return for the year? Now suppose that dividends are taxed at 15% and long-term capital gains (over 11 months) are taxed at 30%. What is your after-tax return for the year?"

Answer 1

Purchase rice	73.00
dividend Income	1.20
Sale Price	78.00
So Cap Gain	5.00
Total Return for the year	6.20
Total Return for the year	=6.2/73
	8.49%
	Income	Tax rate	Net of tax
dividend Income	1.20	15%	1.02
Cap Gain	5.00	30%	3.50
Total	6.20		4.52
After tax return=	4.52/73
After tax return=	6.19%