Question
Five years ago, Kate purchased a dividend-paying stock for $31,000. For all five years, the stock paid an annual dividend of 2 percent before tax
Five years ago, Kate purchased a dividend-paying stock for $31,000. For all five years, the stock paid an annual dividend of 2 percent before tax and Kates marginal tax rate was 24 percent. Every year Kate reinvested her after-tax dividends in the same stock. For the first two years of her investment, the dividends qualified for the 15 percent capital gains rate; however, for the last three years the 15 percent dividend rate was repealed and dividends were taxed at ordinary rates. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
a. What is the current value (at the beginning of year 6) of Kates investment assuming the stock has not appreciated in value?
b. What will Kates investment be worth three years from now (at the beginning of year 9) assuming her marginal tax rate increases to 35 percent for the next three years?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started