QUESTION 1

A)

You purchased 100 shares of MegaCorp for $17 per share four months ago. The brokerage fee was 4% of the total dollar amount of the purchase. Today you sold the shares for $23.50 per share. Brokerage fees were 4% of the total sale value. If you are in the .28 marginal tax bracket, how much tax do you owe on the capital gain? (Hint: since this is a short term investment [less than one year], you will utilize the marginal tax bracket of .28 instead of using the .15 [which is for long term capital gains and dividends.)

		$488 owed on capital gain
		$1,768 owed on capital gain
		$2,256 owed on capital gain
		$136.64 owed on capital gain

B)

You purchased stock in MagnetoVision for $13 per share on January 1, 2006. Over the next year you received $2.22 per share in dividends. On December 31, 2006 MagnetoVision is selling for $12.50 per share. What has been your total gross return (in percent) over the one-year period?

[Hint: use the formula

(div + selling price)/purchase price)-1]

		Total gross return % return = 13.23%
		Total gross return % return = 7.91%
		Total gross return % return = 3.84%
		Total gross return % return = 20.92%

C)

You purchased 1000 shares of stock in Cumberland Software for $3 per share on January 1, 2006. Over the next four years you received 7 cents per share annually in dividends. On December 31, 2009 you sell all your shares of Cumberland Software for $16.50 per share. Brokerage commissions are 4% of the total transaction value when buying and selling. (1) What has been your total gross return (in percent) over the four years? (2) What has been your average annual return over the four years?

		Total gross percentage return = 416.67% and the average annual return = 51.46%
		Total gross percentage return = 535.94% and the average annual return = 55.72%
		Total gross percentage return = 317.67% and the average annual return = 41.46%
		Total gross percentage return = 528.85% and the average annual return = 52.17%

D)

You purchased 1000 shares of stock in Cumberland Software for $3 per share on January 1, 2006. Over the next four years you received 7 cents per share annually in dividends. On December 31, 2009 you sell all your shares of Cumberland Software for $16.50 per share. Brokerage commissions are 4% of the total transaction value when buying and selling.

Now, determine your net return (after taxes and inflation) on Cumberland Software. Assume a marginal tax rate of 31% and a rate of inflation over the four year period of 3.75% per year. (A 31% marginal tax bracket consumer would be taxed 15% for both dividends and capital gains.)

		41.25%
		40.75%
		32.11%
		35.66%