Question

Karim has two investments, one in Company A, and another in Company B. Karim purchased 3,000 shares in company A at $2.65 per share. Since purchasing the shares, the price per share increased to $2.95 per share, after which point Karim decided to sell, realizing a profit. At the same time, Karim purchased 2,000 shares in Company B at $1.55 per share. Since purchasing the shares, the share price fell to $1.30 per share, after which Karim decided to sell the shares, suffering a loss. Karim is required to pay tax at a rate of 28% on the combined profit from both investments. Calculate how much tax Karim must pay.

Answer 1

Karim must pay $112 in tax on the combined profit from both investments.

Step-by-step explanation:

To calculate the profit or loss from each investment, we need to use the following formula:

Profit/Loss = Number of Shares * (Selling Price - Purchase Price)

For investment in Company A:

1. Number of Shares = 3,000
2. Purchase Price = $2.65 per share
3. Selling Price = $2.95 per share

Profit/Loss from Company A = 3,000 * ($2.95 - $2.65) = $900

For investment in Company B:

1. Number of Shares = 2,000
2. Purchase Price = $1.55 per share
3. Selling Price = $1.30 per share

Profit/Loss from Company B = 2,000 * ($1.30 - $1.55) = -$500

Now, let's calculate the combined profit from both investments:

Combined Profit = Profit/Loss from Company A + Profit/Loss from Company B = $900 + (-$500) = $400

Finally, to calculate the tax amount, we can use the formula:

Tax = Combined Profit * Tax Rate

1. Combined Profit = $400
2. Tax Rate = 28%

Tax Amount = $400 * 28% = $112