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

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 and the dividends received.

### Step 1: Calculate Total Return

1. **Initial Investment**:
   - Purchase price per share: $57.77
   - Number of shares: 100
   - Total investment = $ 100 \times 57.77 = 5777 $

2. **Final Value**:
   - Selling price per share after 12 months: $71.72
   - Total final value = $ 100 \times 71.72 = 7172 $

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

4. **Total Gain**:
   - Total gain = Final value + Dividends - Initial investment
   - Total gain = $ 7172 + 74 - 5777 = 1969 $

5. **Total Return**:
   - Total return = $ \frac{\text{Total Gain}}{\text{Initial Investment}} \times 100 $
   - Total return = $ \frac{1969}{5777} \times 100 \approx 34.14\% $

### Step 2: Calculate After-Tax Return

1. **Tax on Dividends**:
   - Qualified dividends tax = 15%
   - Tax on dividends = $ 0.15 \times 74 = 11.1 $
   - After-tax dividends = $ 74 - 11.1 = 62.9 $

2. **Tax on Capital Gains**:
   - Capital gains = Selling price - Purchase price = $ 71.72 - 57.77 = 13.95 $ per share
   - Total capital gain = $ 100 \times 13.95 = 1395 $
   - Tax on capital gains = $ 0.15 \times 1395 = 209.25 $
   - After-tax gain = Total capital gain - Tax on capital gains = $ 1395 - 209.25 = 1185.75 $

3. **Total After-Tax Return**:
   - Total after-tax return = After-tax gain + After-tax dividends = $ 1185.75 + 62.9 = 1248.65 $

4. **After-Tax Return Rate**:
   - After-tax return rate = $ \frac{1248.65}{5777} \times 100 \approx 21.64\% $

### Summary

- **Total Rate of Return**: 34.14%
- **After-Tax Return Rate**: 21.64%

### Realized After-Tax Return if Sold
If you sell the stock, you realize the capital gains and pay taxes, which is included in the calculation above. Holding the stock would only affect your dividends, but selling realizes the capital gains tax effect.

### Final Answers
- **Total Rate of Return**: **34.14%**
- **After-Tax Return Rate (if sold)**: **21.64%**

Do you have any questions or need further details on any part of this calculation? Here are some follow-up questions to consider:

1. How would the return change if the dividend were higher?
2. What would happen to your returns if the capital gains tax rate increased?
3. How does holding the stock longer impact your returns?
4. What factors could affect KSU Corporation’s stock price in the future?
5. How does inflation impact your real return on investment? 

**Tip:** Always consider both capital gains and dividends when evaluating an investment's total return.

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?

Discover how to calculate the total return and after-tax return on your investment in KSU Corporation. With an initial purchase of 100 shares at $57.77, a price increase to $71.72, and a qualified dividend of $0.74, learn how taxes affect your investment returns.

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