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Calculate the average annual rate of return Marcelino would receive if he purchases shares in an Internet stock at $ 23 per share, holds the

Calculate the average annual rate of return Marcelino would receive if he purchases shares in an Internet stock at

$ 23 per share, holds the shares for 5 years, and sells them for $70.

(Hint: Find the holding period return and divide by the number of years in the holding period.)

The annualized rate of return is %.

(Round to two decimal places.)

What is his after-tax rate of return if he is in the 25 percent marginal tax bracket?

The tax due is

(Round to the nearest cent.)

The after-tax rate of return is %.

(Round to two decimal places.)

5. What potentially significant disadvantage does Marcelino face if he sells his stock after only 10 months, for $70 per share, and incurs a short-term capital gain?

Unlike a long-term capital gain that could be taxed at a rate as low as 15% (for taxpayers in the 25% and higher tax brackets in 2012) or 0% (for taxpayers in the 10% and 15% tax brackets in 2012), short-term capital gains are subject to the full marginal tax rate. While this may not be a significant factor for Marcelino as a college student, the difference in capital gains tax rates can be dramatic for individuals in high marginal tax brackets.

Is the statement above true or false?

False

True

.

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