You purchased 1000 shares of stock in Cumberland Software for $3 per share on January 1, 2006. Over the next four years you received 7 cents per share annually in dividends. On December 31, 2009 you sell all your shares of Cumberland Software for $16.50 per share. Brokerage commissions are 4% of the total transaction value when buying and selling. (1) What has been your total gross return (in percent) over the four years? (2) What has been your average annual return over the four years?
You purchased 1000 shares of stock in Cumberland Software for $3 per share on January 1, 2006. Over the next four years you received 7 cents per share annually in dividends. On December 31, 2009 you sell all your shares of Cumberland Software for $16.50 per share. Brokerage commissions are 4% of the total transaction value when buying and selling. Now, determine your net return (after taxes and inflation) on Cumberland Software. Assume a marginal tax rate of 31% and a rate of inflation over the four year period of 3.75% per year. (A 31% marginal tax bracket consumer would be taxed 15% for both dividends and capital gains.)