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year, all of the Stalchecks’s investments have been held more than 12
months, and they would have to consider only unrealized capital
gains, if any. To make the necessary calculations, the Stalchecks have
gathered the following information on each investment in their
portfolio. Common stock. They own 400 shares of KJ Enterprises
common stock. KJ is a diversified manufacturer of metal pipe and is
known for its unbroken stream of dividends. Over the past few years,
it has entered new markets and, as a result, has offered moderate
capital appreciation potential. Its share price has risen from $17.25 at
the start of the last calendar year to $18.75 at the end of the year.
During the year, quarterly cash dividends of $0.20, $0.20, $0.25, and
$0.25 were paid. Industrial bonds. The Stalchecks own eight Cal
Industries bonds. The bonds have a $1,000 par value, have a 9.250%
coupon, and are due in 2027. They are A-rated by Moody’s. The
bonds were quoted at 97.000 at the beginning of the year and ended
the calendar year at 96.375%. Mutual fund. The Stalchecks hold 500
shares in the Holt Fund, a balanced, no-load mutual fund. The
dividend distributions on the fund during the year consisted of $0.60
in investment income and $0.50 in capital gains. The fund’s NAV at
the beginning of the calendar year was $19.45, and it ended the year
at $20.02. Options. The Stalchecks own 100 options contracts on the
stock of a company they follow. The value of these contracts totaled
$26,000 at the beginning of the calendar year. At year-end the total
value of the options contracts was $29,000. Questions a.
Calculate the holding period return on a before-tax basis for
each of these four investments. b. Assuming that the Stalchecks’s
ordinary income is currently being taxed at a combined (federal and
state) tax rate of 38% and that they would pay a 15% capital gains tax
on dividends and capital gains for holding periods longer than 12
months, determine the after-tax HPR for each of their four
investments. c. Recognizing that all gains on the Stalchecks’s
investments were unrealized, calculate the before-tax portfolio HPR
for their four-investment portfolio during the past calendar year.