Question

A customer purchases stock for $40 per share and holds it for 1 year, selling it for $50 per share exactly 12 months after the date of purchase. Four quarterly qualifying dividends of $.50 were paid during the year. If the customer's tax bracket is 30%, what is the after-tax rate of return?

Answer 1

24.75%

Step-by-step explanation:

the customer will be taxed in two different rates:

long term capital gains = $50 - $40 = $10 per stock x (1 - 15%) = $8.50

interests are taxed as normal income = (4 x $0.50) x (1 - 30%) = $1.40

total after tax gains = $9.90

after tax rate of return = $9.90 / $40 = 0.2475 = 24.75%