You buy a stock for $30 per share and sell it for $33 after holding it for slightly over a year and collecting a $0.75 per share dividend. Your ordinary income tax rate is 28% and your capital gains tax rate is 20%. Your after-tax rate of return is ___________________.

Question

Quizplus · Accepted Answer

We can use the formula to calculate the after-tax rate of return, which takes into account the capital gains tax and the ordinary income tax on dividends. Plugging in the numbers, we get:

[(33 - 30) x (1 - 0.20) + (0.75 x (1 - 0.28))] / 30 = 2.94 / 30 = 0.098 = 9.8%

Therefore, the after-tax rate of return is 9.8%, which is closest to option D.

You Buy a Stock for $30 Per Share and Sell