After reading this chapter, it isn\'t surprising that you\'re becoming an invest
ID: 2803037 • Letter: A
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 $57.86 per share. Over the next 12 months assume the price goes up to $ 68.39 per share, and you receive a qualified dividend of $0.51 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.
Question - Your total rate of return on your KSU Corporation investment is___________ %. (Round to two decimal places.)
Explanation / Answer
Total return on investment = [(P1 - P0 ) + D] / P0
= [(68.39-57.86) + 0.51] / 57.86
= 19.08%
After tax return if we hold the stock = 0.51*(1-25%)
= $0.38
Realized after tax return if stock is sold = after tax return + after tax capital gain
= 0.38 + 10.53(1-15%)
= $9.33