Question

1. A year ago, George Jetson, from Orbit City, Texas, invested $1000 by buying 100 shares of the Can’t Lose Mutual Fund, an aggressive growth no-load mutual fund. George reinvested his dividends, so he now has 112 shares. So far, the NAV for George’s investment has risen from $10 per share to $13.25.
(a) What is the percentage increase in the NAV of George’s mutual fund?
(b) If George redeemed the first 100 shares of his mutual fund investment for $13.25 per share, what would be his capital gain over the amount invested?
(c) Assuming George pays income taxes at the 25 percent rate, how much income tax will he have to pay if he sells those first 100 shares?
2. Two years ago, Izabella Martinez, from Denver, Colorado, invested $1000 by buying 125 shares ($8 per share NAV) in the Can’t Lose Mutual Fund, an aggressive growth no-load mutual fund. Last year, she made two additional investments of $500 each (50 shares at $10 and 40 shares at $12.50). Izabella reinvested all of her dividends. So far, the NAV for her investment has risen from $8 per share to $13.25. Late in the year, she sold 60 shares at $13.25.
(a) What were the proceeds from Izabella’s sale of the 60 shares?
(b) To use the Internal Revenue Service’s “average-cost basis method” of determining the average price paid for one share, begin by calculating the average price paid for the shares. In this instance, the $2000 is divided by 215 shares (125 shares 1 50 shares 1 40 shares). What was the average price paid by Izabella?
(c) To finally determine the average-cost basis of shares sold, you multiply the average price per share times the number of shares sold—in this case, 60. What is the total cost basis for Izabella’s 60 shares?
(d) Assuming that Izabella has to pay income taxes on the difference between the sales price for the 60 shares and their cost, how much is this difference?



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  • CreatedNovember 26, 2014
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