Suppose you are a stock broker for WillyP Financial. Your client bought a share
ID: 2809616 • Letter: S
Question
Suppose you are a stock broker for WillyP Financial. Your client bought a share of stock of Intel at $60 and a share of stock Microsoft at $115. A year later, after your client received a $5 dividend from Intel and $3 from Microsoft, he sold the stock Intel at $55 per share and Microsoft $125. What are the expected after tax returns for your client if your client is
(Keep your answer to only two decimals)
(a) a church investment fund (tax-exempt status) (example of answer format: xx.xx%, such as 12.34%)
(b) a corporation paying tax at 35% (remember that corporations may exclude 70% of dividends received from domestic corporations in the computation of their taxable income)
(c) an individual paying tax at 35% on dividend income and 15% on capital gains
(d) a security dealer paying tax at 35% on both investment income and capital gains
Explanation / Answer
1.
Tax=0
Returns=(5+3+55+125-0)/(60+115)-1=7.4286%
2.
Tax=35%*5*0.3+35%*3*0.3+35%*(60-55+125-115)=6.09
Returns=(5+3+55+125-6.09)/(60+115)-1=3.9486%
3.
Tax=35%*5+35%*3+15%*(60-55+125-115)=5.05
Returns=(5+3+55+125-5.05)/(60+115)-1=4.5429%
4.
Tax=35%*5+35%*3+35%*(60-55+125-115)=8.05
Returns=(5+3+55+125-8.05)/(60+115)-1=2.8286%