Question
Assume that the tax rate on both capital gains and dividend income is 15%. An investor has two options for the stock of BBB firm:
Assume that the tax rate on both capital gains and dividend income is 15%. An investor has two options for the stock of BBB firm: option 1) recieve $100 on dividend income now, option 2) get unrealized capital gains of $100 now which are left to grow with the firm for five years. The expexted rate on the stock of BBB firm is 8%.The investor will invest his after tax dividend income in BBB stock for five years. What is the investors after tax net income under option 1 and 2 in five years?
1. $129.10 (1), $136.8 (2)
2. $111.914 (1), $124.892 (2)
3.$118.908 (1), $124.892 (2)
4.$121.53 (1), $124.832 (2)
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