Tax rate on both capital gains and dividend income

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Reference no: EM131504213

Assume that the tax rate on both capital gains and dividend income is 15 %. An investor has two options for the stock of ABC firm: I) receive $100 of dividend income now, II) get unrealized capital gains of $100 now which are left to grow with the firm for five years. The expected rate of return on the stock of ABC firm is 8%. The investor will invest his after-tax dividend income in ABC stock for five years. What is the investor’s after-tax net income under options I and II in five years?

1. $111.914 (I), $124.892 (II)

2. $129.10 (I), $136.80 (II)

3. $121.53 (I), $124.892 (II)

4. $118.908 (I), $124.892 (II)

Reference no: EM131504213

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