Question
Assume that the tax rate on capital gains is 15%, while the tax rate on dividend income is 20%. an investor is compariing two options
Assume that the tax rate on capital gains is 15%, while the tax rate on dividend income is 20%. an investor is compariing two options for the stock ABC Firm;1) received $100 on dividend now, 2) get unrealized capital gains of $100 now shich are left to grow with the firm for five years. The expected rate of return on the stock ABC firm is 8%. The investor will invest his after tax dividend incom in ABC for five years. How much higher after tax income the investor will get in five years under the capital gains option 2 than under the dividend income option 1. (difference of option 2 income over option 1 income?
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