Question

At the end of the year you sell at $75 a stock that you have acquired at $68 at the beginning of the year. During the year the stock paid $1.50 in dividends. Capital gains tax rate = 15%, marginal tax rate = 35% (Show explanations)

a) Calculate the Before Tax Capital Gain (Loss) return

b) Calculate the Before Tax Dividend return

c) Calculate the After-Tax Capital Gain (Loss) return

d) Calculate the After-Tax Dividend return

e) Calculate the Before Tax Total return

f) Calculate the After-Tax Total return

Answer 1

a) Calculate the Before Tax Capital Gain (Loss) return

(sales price-Purchase price) / Purchase price =(75-68)/68 =10.29%

b) Calculate the Before Tax Dividend return

Dividend income / Purchase price =$1.50/68=2.21%

c) Calculate the After-Tax Capital Gain (Loss) return

Capital Gain *(1-Tax) =10.29%*(1-15%)=8.75%

d) Calculate the After-Tax Dividend return

Dividend return *(1-Tax) =2.21%*(1-35%)=1.44%

e) Calculate the Before Tax Total return

=Before tax capital gain return + Before tax dividend return =10.29%+2.21% =12.50%

f) Calculate the After-Tax Total return

=After tax capital gain return + After tax dividend return =8.75%+1.44%=10.19%+1.