Which statement is true concerning the one-year after-tax return on the following stocks, assuming a 40% tax rate on dividends and a 20% tax rate on capital gains: Stock A is purchased for $50, offers a 5% dividend yield, and is sold for $56; stock B is purchased for $60, offers no dividend yield, but is sold after one year for $70.

Question

Quizplus · Accepted Answer

R_A = [0.05 × $50 × (1 - 0.40)]/$50 + [($56 - 50)/$50](1 - 0.20) = 0.1260, or 12.60%R_B = [($70 - 60)/$60](1 - 0.20) = 0.1333, or 13.33%Difference = 13.33% - 12.60 = 0.73%

Which Statement Is True Concerning the One-Year After-Tax Return on the Following