Question

Question Sally, an investor, purchases 3,000 shares in company X at $1.75 per share. After purchasing the shares the share price increases to $2.25 per share, after which Sally decides to sell her shares. Sally is required to pay 25% tax on all profits that she makes from the sale of the shares (called Capital Gains tax). Calculate the amount of tax that Sally must pay. Give your answer to the nearest dollar. Give your answer in dollars without the dollar sign or commas.

Answer 1

We are given the following information

Number of shares = 3,000

Buying price of a share = $1.75

Selling price of a share = $2.25

Capital Gains tax = 25% = 0.25

We are asked to calculate the amount of tax that Sally must pay.

Let us first calculate the profit.

Profit is given by

Profit = Selling price - Buying price

The buying price is given by

Buying price = (Number of shares)×(Buying price of a share)

Buying price = 3,000×1.75

Buying price = $5,250

The selling price is given by

Selling price = (Number of shares)×(Selling price of a share)

Selling price = 3,000×2.25

Selling price = $6,750

Profit = Selling price - Buying price

Profit = $6,750 - $5,250

Profit = $1,500

Finally, the amount of tax is given by

Amount of tax = profit × Capital Gains tax

Amount of tax = 1500 × 0.25

Amount of tax = $375

Therefore, Sally is required to pay a tax of $375