1.

After reading this chapter, it isn't surprising that you're becoming an investment wizard. With your newfound expertise, you purchase 100 shares of KSU Corporation for $48.89 per share. Assume the price goes up to $61.89 per share over the next 12 months and you receive a qualified dividend of $0.66 per share. What would be your total return on your KSU Corporation investment? Assuming you continue to hold the stock, calculate your after-tax return. How is your realized after-tax return different if you sell the stock? In both cases assume you are in the 25 percent federal marginal tax bracket and 15 percent long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income.

Your total rate of return on your KSU Corporation investment is _____%.

(Round to two decimal places.)

2.

Last year you sold short 400 shares of stock selling at $87.46 per share. Six months later the stock had fallen to $48.73 per share. Over the six-month period, the company paid out two dividends of $2.11 per share. Your total commission cost for selling and buying the shares came to $109. Determine your profit or loss from these transactions.