1. Daniel is considering selling two stocks that have not fared well over recent years. A friend recently informed Daniel that one of his stocks has a special designation, which allows him to treat a loss up to $40,000 on this stock as an ordinary loss rather than the typical capital loss. Daniel figures that he has a loss of $48,000 on each stock. If Daniels marginal tax rate is 35 percent and he has $96,000 of other capital gains (taxed at 15 percent), what is the tax savings from the special tax treatment?

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Helen holds 1,800 shares of Fizbo Inc. stock that she purchased 11 months ago. The stock has done very well and has appreciated $34/share since Helen bought the stock. When sold, the stock will be taxed at capital gains rates (the long-term rate is 15 percent and the short-term rate is the taxpayers marginal tax rate). Ignore the time value of money.

a. If Helens marginal tax rate is 35 percent, how much would she save by holding the stock an additional month before selling?

b. What might prevent Helen from waiting to sell?

Helen bears	?	if she holds the stock	for an additional month.	The stock price could
?	substantially if	there is market volatility	or if the company	encounters financial
difficulties. In	addition, Helen	may be selling the stock	?	for which she may
be unwilling to wait.