After reading this​ chapter, it​ isn't surprising that​ you're becoming an investment wizard. With your newfound​ expertise, you purchase 100 shares of KSU Corporation for ​$57.77 per share. Assume the price goes up to $ 71.72 per share over the next 12 months and you receive a qualified dividend of ​$0.74 per share. What would be your total return on your KSU Corporation​ investment? Assuming you continue to hold the​ stock, calculate your​ after-tax return. How is your realized​ after-tax return different if you sell the​ stock? In both cases assume you are in the 25 percent federal marginal tax bracket and 15 percent​ long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income.
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Part 1
Your total rate of return on your KSU Corporation investment is

25.43​%. ​ (Round to two decimal​ places.)
Part 2
Assuming you continue to hold the​ stock, your​ after-tax rate of return is

25.24​%. ​ (Round to two decimal​ places.)
Part 3
Your realized​ after-tax rate of return if you sell the stock is

enter your response here​%. ​ (Round to two decimal​ places.)

To calculate your total return, after-tax return, and realized after-tax return from your investment in KSU Corporation, we can break down the process as follows:

### Part 1: Total Rate of Return

1. **Initial Investment**: 
   - Shares purchased: 100
   - Price per share: $57.77
   - Total investment = 100 shares × $57.77 = $5,777.

2. **Final Value of Investment**:
   - New price per share: $71.72
   - Final value = 100 shares × $71.72 = $7,172.

3. **Dividends Received**:
   - Dividend per share: $0.74
   - Total dividends = 100 shares × $0.74 = $74.

4. **Total Return**:
   - Total return = (Final Value + Dividends - Initial Investment) / Initial Investment
   - Total return = ($7,172 + $74 - $5,777) / $5,777
   - Total return = $1,469 / $5,777 = 0.2543, or **25.43%**.

### Part 2: After-Tax Rate of Return (if you hold the stock)

1. **Tax on Dividends**:
   - Dividend income = $74.
   - Tax on dividends = 15% of $74 = $11.10.

2. **Net Dividend after Tax**:
   - Net dividends = $74 - $11.10 = $62.90.

3. **After-Tax Total Value**:
   - After-tax final value (assuming no capital gains tax yet, as you’re holding) = $7,172.

4. **After-Tax Return Calculation**:
   - After-tax return = (Final Value + Net Dividends - Initial Investment) / Initial Investment
   - After-tax return = ($7,172 + $62.90 - $5,777) / $5,777
   - After-tax return = $1,457.90 / $5,777 = 0.2524, or **25.24%**.

### Part 3: Realized After-Tax Rate of Return (if you sell the stock)

1. **Total Gain from Selling**:
   - Total gain = (Final Price - Initial Price) × Shares + Dividends
   - Total gain = ($71.72 - $57.77) × 100 + $74 = $1,945 + $74 = $2,019.

2. **Tax on Capital Gains**:
   - Capital gains = $1,945 (selling price gain).
   - Tax on capital gains = 15% of $1,945 = $291.75.

3. **After-Tax Gain**:
   - After-tax gain = Total gain - Tax on capital gains
   - After-tax gain = $2,019 - $291.75 = $1,727.25.

4. **Realized After-Tax Return Calculation**:
   - Realized after-tax return = (After-Tax Gain) / Initial Investment
   - Realized after-tax return = $1,727.25 / $5,777 = 0.2980, or **29.80%**.

### Summary of Results:
- **Total Rate of Return**: 25.43%
- **After-Tax Rate of Return (holding)**: 25.24%
- **Realized After-Tax Rate of Return (selling)**: 29.80%

If you have further questions or need more details on any part, feel free to ask! 

### Additional Questions:
1. What factors should be considered when deciding whether to hold or sell an investment?
2. How do different tax brackets affect investment decisions?
3. What are the risks associated with investing in stocks like KSU Corporation?
4. How can dividends impact the overall return on investment?
5. What strategies can you employ to minimize tax liabilities on investments?

### Tip:
Consider consulting with a financial advisor to tailor investment strategies to your personal financial situation and tax circumstances.

After reading this chapter, it isn't surprising that you're becoming an investment wizard. With your newfound expertise, you purchase 100 shares of KSU Corporation for $57.77 per share. Assume the price goes up to $71.72 per share over the next 12 months and you receive a qualified dividend of $0.74 per share. What would be your total return on your KSU Corporation investment? Assuming you continue to hold the stock, calculate your after-tax return. How is your realized after-tax return different if you sell the stock? In both cases assume you are in the 25 percent federal marginal tax bracket and 15 percent long-term capital gains and qualified dividends tax bracket and there is no state income tax on investment income.

Explore how to calculate total return, after-tax return, and realized after-tax return on an investment in KSU Corporation. This detailed example illustrates the process, including a total return of 25.43%, an after-tax return of 25.24% if held, and a realized after-tax return of 29.80% if sold.

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