On February 19, 2016, Angela purchased 100 shares of BRD stock at a total cost of $3,425.She received a total of $250.00 in dividends and sold the stock today, February 22, 2017 for $3,692.Angela has a marginal tax rate of 28%.The tax rate on dividend income and long-term capital gains is 15%.What is Angela's after-tax holding period return on her investment in BRD stock?

Question

Quizplus · Accepted Answer

Angela's initial investment was $3,425, and she received $250.00 in dividends. Therefore, her total return is $3,942 ($3,425 + $250 + $267) after selling the stock for $3,692.

Her taxable dividend income is $250, and her long-term capital gain is $267 ($3,692 - $3,425). Her tax liability on the dividend income is $37.50 ($250 x 15%), and her tax liability on long-term capital gains is $26.70 ($267 x 10%). Therefore, her total tax liability is $64.20 ($37.50 + $26.70).

Her after-tax return is $3,877.80 ($3,942 - $64.20). Therefore, her after-tax holding period return is 12.8% ($3,877.80 / $3,425).

On February 19, 2016, Angela Purchased 100 Shares of BRD