How fast must geeky, inc. stock grow for you

Reference no: EM133420433

Question: You hold 1000 shares of Rusty Company and each is worth $5. You paid $1 for each share several years ago. You anticipate its stock price will increase by 10% per year. You would like to sell your Rusty Company stock and buy Geeky, Inc. stock with the proceeds because you see even more upside for Geeky, Inc.

How fast must Geeky, Inc. stock grow for you to be indifferent (after-tax) between:

(a) holding Rusty Company stock and doing nothing and

(b) selling Rusty Company stock and reinvesting in Geeky, Inc. Whatever you do, assume that in three years you will liquidate your holdings to pay for your daughter's college education. Assume the capital gains tax rate is 15%, and that neither stock pays dividends.

Reference no: EM133420433

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