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Suppose that a person invested 1000 euros into stocks on June 1, 2018 and sold these stocks for 1300 euros on June 1, 2020
Suppose that a person invested 1000 euros into stocks on June 1, 2018 and sold these stocks for 1300 euros on June 1, 2020. Suppose that there were no commission fees applied on these trades. During the holding period, this person also received 50 euros of dividends from these stocks. The dividends were paid out on June 1, 2020.
Suppose that the realized capital gains are taxed at 20% and the dividends are tax exempt in the country of residence of this person. Find the nominal after-tax rate of return for this person from the investment described.
Expert Solution
Return on share= [ dividend +(sale price -purchase price )(1-t)/purchse price
Purchase on June 1 2018 for 1000 Euro
Sale on June 1 2020 for 1300 Euro
Dividend received during periods =50 Euro
Capital gains tax = 20%
Return on share for period of 1 June 2018 to 2020 for 3 year =[50+(1300-1000)(1-0.2)]/1000
=(50+300*0.8)/1000
=29% for 3 year
Or 29/3 =9.67 per annum
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