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 $43.53 per share. Over the next 12 months assume the price goes up to $54.93 per​ share, and you receive a qualified dividend of $0.45 per share. What would be your total return on your KSU Corporation​ investment? Assuming you continue to hold the​ stock, calculate your​ after-tax return. 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.

Answer 1

	P0=	43.53
	P1 =	54.93
	D1 =	0.45
	Total retun =	Change in price + Dividend income
		= (P1 - P0) + D1
		= (54.93 - 43.53) + 0.45
		11.85
(i)	Rate of return =		Total Return/Initial price
			=11.85/43.53 X 100
			27.22%
(ii)	a.	If Held then the tax will not be applicable since the gain is not realised
		Post tax return =		27.22%
	b.	If sold -
		Tax on Total return =			11.85 x 15%
					1.7775
		Post tax return =		11.85-1.7775 =	10.0725
		After tax rate of return =			10.0725/43.53 x 100
					23.14%
	Please provide feedback.
	Thanks in advance :-)