Which Statement Is True Concerning the One-Year After-Tax Return on the Following

Which statement is true concerning the one-year after-tax return on the following stocks, assuming a 40% tax rate on dividends and a 20% tax rate on capital gains: Stock A is purchased for $50, offers a 5% dividend yield, and is sold for $56; Stock B is purchased for $60, offers no dividend yield, but is sold after one year for $70.

A) Stock A's after-tax return is higher by 1.27%.
B) Stock B's after-tax return is higher by 0.73%.
C) Stock A's after-tax return is higher by 0.27%.
D) Stock B's after-tax return is higher by 0.58%.

Correct Answer:

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