Assume you are in the 35% tax bracket (taxable income of $416,700 to $470,700 for married filing jointly) for 2017. Previously you purchased a stock for $50 and sold it for $55 in 2017. During the holding period, the stock paid $2 of dividends.

Compute:

1)Your before-tax rate of return.

2)Your after-tax rate of return assuming the dividends are qualified and your holding period was less than one year.

3)Your after-tax rate of return assuming the dividends are qualified and your holding period was greater than one year

1. r=$2/$50+($55-$50)/$50=4%+10%=14%

2. r=($2(1-0.15))/$50+(($55-$50)(1-0.35))/$50=3.4%+6.5%=9.9%

3. r=($2(1-0.15))/$50+(($55-$50)(1-0.15))/$50=3.4%+8.5%=11.9%

I know answers for number 1 and 3, but I don't understand why they put (1-0.15) for dividend yield in number 2 solution. I thought holding period is short-term and his tax bracket is 35%, so it should be 1-0.35 instead of 1-0.15.