Mason and kirsty purchase 30 shares of apple stock on january 1, 2009 for $72.49 per share. mason and kirsty receive $0.36 per share in dividends each quarter. on december 31, 2015 mason and kirsty sell all 30 shares of apple stock for $183.00 per share. mason and kirsty’s long-term capital gains and dividends are taxed at 10%. what is mason and kirsty’s after-tax average annual return? calculate after-tax dividends on an annual basis at the end ?

Explanation:

initial investment = 30 shares x $72.49 per share = $2,174.70

- dividends received per year = 30 shares x $0.36 x 4 (dividends paid every quarter) = $43.20

after tax dividends per year = $43.20 x 90% = $38.88

- long term capital gains = (30 shares x $183 per share) - initial investment =  $5,490 - $2,174.70 = $3,315.30

taxes on long term capital gains = $3,315.30 x 10% = $331.53

To calculate Mason and Kirsty's after tax average annual return (interest rate) we can use the excel spreadsheet =RATE function, where:

=RATE (nper, pmt, pv, [fv])

=RATE (7,38.88,-2174.70,5158.47) = 14.41%

the answer is a.

by: nicholas dooley