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 ​$32.71 per share. Assume the price goes up to $ 41.24 per share over the next 12 months and you receive a qualified dividend of ​$0.59 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 
  
enter your response here​%. ​ (Round to two decimal​ places.)

To calculate your total return on the KSU Corporation investment, we need to consider both the capital gains from the increase in stock price and the dividends received.

### Given:
- **Shares purchased:** 100 shares
- **Purchase price per share:** $32.71
- **Selling price per share after 12 months:** $41.24
- **Dividend per share:** $0.59
- **Federal tax bracket:** 25% 
- **Long-term capital gains and qualified dividends tax rate:** 15%

### Calculating Total Return

1. **Initial Investment:**
   \[
   \text{Initial Investment} = 100 \text{ shares} \times 32.71 \text{ USD/share} = 3271 \text{ USD}
   \]

2. **Final Value of Investment:**
   \[
   \text{Final Value} = 100 \text{ shares} \times 41.24 \text{ USD/share} = 4124 \text{ USD}
   \]

3. **Dividends Received:**
   \[
   \text{Dividends} = 100 \text{ shares} \times 0.59 \text{ USD/share} = 59 \text{ USD}
   \]

4. **Total Return:**
   \[
   \text{Total Return} = \text{Final Value} + \text{Dividends} - \text{Initial Investment}
   \]
   \[
   \text{Total Return} = 4124 \text{ USD} + 59 \text{ USD} - 3271 \text{ USD} = 912 \text{ USD}
   \]

5. **Total Rate of Return (as a percentage):**
   \[
   \text{Total Rate of Return} = \left( \frac{\text{Total Return}}{\text{Initial Investment}} \right) \times 100
   \]
   \[
   \text{Total Rate of Return} = \left( \frac{912}{3271} \right) \times 100 \approx 27.85\%
   \]

### After-Tax Returns

1. **Tax on Dividends:**
   \[
   \text{Tax on Dividends} = 59 \text{ USD} \times 15\% = 8.85 \text{ USD}
   \]
   \[
   \text{After-Tax Dividends} = 59 \text{ USD} - 8.85 \text{ USD} = 50.15 \text{ USD}
   \]

2. **Capital Gains:**
   \[
   \text{Capital Gain} = \text{Final Value} - \text{Initial Investment} = 4124 \text{ USD} - 3271 \text{ USD} = 853 \text{ USD}
   \]
   \[
   \text{Tax on Capital Gain} = 853 \text{ USD} \times 15\% = 127.95 \text{ USD}
   \]
   \[
   \text{After-Tax Capital Gain} = 853 \text{ USD} - 127.95 \text{ USD} = 725.05 \text{ USD}
   \]

3. **Total After-Tax Return:**
   \[
   \text{Total After-Tax Return} = \text{After-Tax Capital Gain} + \text{After-Tax Dividends}
   \]
   \[
   \text{Total After-Tax Return} = 725.05 \text{ USD} + 50.15 \text{ USD} = 775.20 \text{ USD}
   \]

4. **After-Tax Rate of Return:**
   \[
   \text{After-Tax Rate of Return} = \left( \frac{775.20}{3271} \right) \times 100 \approx 23.69\%
   \]

### Summary of Results
- **Total Rate of Return:** **27.85%**
- **After-Tax Rate of Return (if holding):** **23.69%**

### Selling the Stock
If you sell the stock, your realized after-tax return would be the same as calculated above since you're selling after a year (long-term capital gains).

#### Differences in Realized After-Tax Return:
If you hold the stock, the return considers future performance and dividends, while selling locks in gains at that point. The total return remains the same, but if prices drop post-sale, you forfeit potential gains.

Would you like further details on any specific part of this calculation? Here are some related questions to consider:

1. How does the total return change with different purchase prices?
2. What are the implications of short-term capital gains taxes?
3. How would dividends impact your overall investment strategy?
4. What factors can influence stock price appreciation over time?
5. How does diversification affect overall investment returns?

### Tip:
Consider tax implications on all investment decisions to maximize net returns!

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 $32.71 per share. Assume the price goes up to $41.24 per share over the next 12 months and you receive a qualified dividend of $0.59 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?

Calculate the total return and after-tax return on your KSU Corporation investment of 100 shares at $32.71, with a price increase to $41.24 and a qualified dividend of $0.59 per share. Explore the differences in realized after-tax return when holding versus selling the stock.

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