pril receives 3% every three months in dividend income from her stock investment. She paid $7,150 for the stock and she expects to sell it in 7 years for $9,000. She can reinvest the quarterly dividend income at 3.5% compounded annually. Her salary is $83,000 per year. Her marginal tax rate is 40%, which is also the applicable tax rate on interest income.

The tax rate on dividend income is 22%. HINT: The first questions below are before-tax, the last one is after-tax:

1) What is her annualized HPR _before-tax if she does not reinvest the dividend income? 

2) What is her annualized HPR _before-tax if she reinvests the dividend income?  

 

                                                                                                                                  

 3) What is her annualized HPR _after-tax if she reinvests the dividend income and taxes are paid annually? 

Answer rating: 100% (QA)

To calculate the HPR holding period return beforetax without reinvesting the dividend income we need to find the total return over the holding period and then annualize it The total return can be calc... View the full answer