Tim purchased a stock ten months ago for $14 a share, received a $1 dividend per share last month, and sold the stock today for $16 per share. Tim has a marginal tax rate of 30%. Both capital gains for securities held more than one year and dividend income is taxed at 15%. What is Tim's after-tax holding period return?
A) 14.1%
B) 15.9%
C) 16.1%
D) 18.2%

Question

Quizplus · Accepted Answer

The after-tax holding period return is calculated as follows:After-tax capital gain = (Sale price - Purchase price) * (1 - Capital gains tax rate)= ($16 - $14) * (1 - 0.15)= $2 * 0.85= $1.70After-tax dividend income = Dividend per share * (1 - Dividend tax rate)= $1 * (1 - 0.15)= $0.85Total after-tax return = After-tax capital gain + After-tax dividend income= $1.70 + $0.85= $2.55After-tax holding period return = (Total after-tax return / Purchase price) * 100%= ($2.55 / $14) * 100%= 16.1%

Tim Purchased a Stock Ten Months Ago for $14 a Share