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You have XYZ stock in your Keogh pension plan account. You bought the stock for $8,500...

You have XYZ stock in your Keogh pension plan account. You bought the stock for $8,500 10 years ago when you were 50 years old. and the stock is now worth $14,500. You are in the 32 percent income tax bracket and pay 15 percent on long-term capital gains.

a) What was the annual rate of growth in the value of the stock?

b) Are you going to save or owe taxes if you decide to sell the stock? What are the taxes owed or saved if you withdraw the funds?

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Homework Answers

Answer #1

PART A-

Calculation of annual growth rate-

(1 + Growth rate) 10 years = 1.7059

(1 + Growth rate)= 1.05486

Growth Rate = 0.05486 or 5.486 %

PART B -

Calculation of Taxes owed or saved on sale of stock-

Capital gain on sale of stock = Sale price - Purchase price

Capital gain on sale of stock = $ 14,500 - $ 8,500 = $ 6,000

Tax @10% on Long term capital gain of $ 6,000 = $ 6,000 * 10%

Tax = $ 600

Thus, we will owe $ 600 if we sell the stock

Incase of any doubt, please comment below. I would be happy to help.

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