What Is the Difference in the One-Year After-Tax Returns on the Following

What is the difference in the one-year after-tax returns on the following two stocks,assuming a 40% tax rate on dividends and a 20% tax rate on capital gains? Stock A is purchased for $50,pays a $2.5 dividend at the end of the year,and is then sold for $56; stock B is purchased for $60,pays no dividend,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:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free