1. A capital gains tax is a tax that one pays on proceeds earned from selling a stock for more than its original purchase price. For example, if you buy a stock for $100 and sell it for $120, with a 10% capital gains tax, you would have to pay a 10% tax on the $20 difference between what you sold for and what you bought it for (a $2.00 tax in this case). Suppose you are subject to a capital gains tax of 10%. You just purchased 100 shares of a stock which you believe will pay a dividend of $8 one year from now. You believe that this dividend will grow at a constant 4% annual rate, and that its required return (discount rate) is 16%. If you plan to sell all 100 shares of this stock in three years how much will you likely have to pay in capital gains taxes (rounded to the nearest 10 cents)