Question

You purchase 100 shares of USK Corporation for $41.71 per share. Assume the price goes up to $50.34 per share over the next 12 months and you received a qualified dividend of $0.67 per share. What would be your total return on your USK 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% Federal marginal tax bracket and 15% long-term capital gains and qualified dividends tax bracket and if there is no state income tax on investment income.
your total rate of return on your USK Corporation investment is __%

Answer 1

Answer :

Here, we have

Stock price gain = 50.34 - 41.71 = $ 8.63

Dividend = $ 0.67

Total gain = $ 8.63 + $ 0.67 = $ 9.30

Total Rate of Return = 9.30 / 41.71

Total Rate of Return = 22.30%

There will be no taxes as i am not selling the share and realizing a profit. There are no taxes on unrealized profit. I will only need to pay taxes on the dividend i received.

Stock price gain = 50.34 - 41.71 = $ 8.63

After-tax dividend = $ 0.67 ( 1 - 0.15 ) = 0.5695

Total gain = $ 8.63 + $ 0.5695 = $ 9.1995

Total After-tax Rate of Return = 9.1995 / 41.71

= 22.06%