1. You invested $5,000 in a stock and kept it for 4 years when you sold it for $5, 500. The company paid you the following dividends annually: $237, $175, $203 and $116 in years 1 through 4, respectively. The average inflation during this period is 5% per year. Prepare a table to show the inflation-adjusted, after tax cash flow. Assume that you are already in the 28% income tax bracket. Assume that capital gain loss is taxed at 15%.
2. You bought a house for $300,000 for investment purposes with the intention of selling it after 5 years. You hope to earn a 4% before-tax, inflation adjusted rate of return. What should be the selling price of the house if the average inflation rate over this time period is 3%?
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