Suppose that, last year, you purchased 150 shares of eight different stocks, for a total of...

   

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Suppose that, last year, you purchased 150 shares of eight different stocks, for a total of 1,200 shares. The table in the next slide lists the stocks that you purchased, the price you purchased them for last year, the current price, and the price estimate for next year. If you sell any shares, you have to pay a transaction cost of 1% of the amount transacted. In addition, you must pay a capital-gains tax at the rate of 30% on any capital gains at the time of the sale. For example, suppose that you sell 100 shares of a stock today at $50 per share. which you originally purchased for $30 per share. You would receive $5,000. However, you would have to pay capital-gains taxes of 0.30 x ($5.000 - $3.000) = $600 and you would have to pay $50 in transaction costs (1% of $5.000). Therefore, by selling 100 shares of this stock. you would have a net cash flow of $5,000 - $600 - $50 = $4,350. Note that for this problem, none of the stocks decreased in value since the time of purchase, so we do not have to deal with capital losses. Suppose that, last year, you purchased 150 shares of eight different stocks, for a total of 1,200 shares. The table in the next slide lists the stocks that you purchased, the price you purchased them for last year, the current price, and the price estimate for next year. If you sell any shares, you have to pay a transaction cost of 1% of the amount transacted. In addition, you must pay a capital-gains tax at the rate of 30% on any capital gains at the time of the sale. For example, suppose that you sell 100 shares of a stock today at $50 per share. which you originally purchased for $30 per share. You would receive $5,000. However, you would have to pay capital-gains taxes of 0.30 x ($5.000 - $3.000) = $600 and you would have to pay $50 in transaction costs (1% of $5.000). Therefore, by selling 100 shares of this stock. you would have a net cash flow of $5,000 - $600 - $50 = $4,350. Note that for this problem, none of the stocks decreased in value since the time of purchase, so we do not have to deal with capital losses.

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ANSWER To calculate the net cash flow from selling shares of each stock we need to consider the foll... View the full answer