Maria purchased $5,000 of no-load mutual fund shares just over a year ago. She received $136 in dividend income and $201 in long-term capital gains distributions. Today she sold her shares for $5,062. Maria is in the 25% marginal tax bracket. Capital gains with holding periods in excess of one year and dividend income are taxed at 15%. What is Maria's after-tax holding period return?
A) 6.0%
B) 6.6%
C) 6.8%
D) 8.0%

Question

Quizplus · Accepted Answer

Maria's total pre-tax return is $136 (dividends) + $201 (capital gains distributions) + ($5,062 - $5,000) (capital gain from sale) = $399. The tax on dividends and capital gains is 15%, so the tax is 0.15 * $399 = $59.85. The after-tax return is $399 - $59.85 = $339.15. The after-tax holding period return is $339.15 / $5,000 = 6.8%.

Maria Purchased $5,000 of No-Load Mutual Fund Shares Just Over