Reading 36: Equity: Markets and Instruments-LOS c 习题精选 2011, recently, different, investment, class

土豆妮

Session 10: Equity Valuation: Valuation Concepts
Reading 36: Equity: Markets and Instruments

LOS c: Calculate the impact of different national taxes on the return of an international investment

 

 

Simon Rosen, CFA, a portfolio manager for the Asian Spec Fund, recently purchased 1,000 shares of China Petroleum at a price of 271.11 Chinese yuan (CY) on the Shanghai Stock Exchange. The current exchange rate at the time was 8.2781 CY to one U.S. dollar (USD). China Petroleum paid an annual dividend of 9.02 CY per share and dividends are subject to 10 percent withholding tax. Capital gains taxes and dividends are 20 percent for the U.S. Simon sold all of his holdings in China Petroleum one year later at a price of 325.33 CY. Assume that the U.S. tax laws allow a full tax credit for taxes paid on international investments. Further assume that over the course of the year, exchange rates remained constant. The amount of tax credit available for dividends (in U.S. dollars) is:

A) USD 108.96.

B) USD 1,089.62.

C) USD 902.00.

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CY dividend paid = 9.02 CY × 1,000 = 9,020 CY

Tax withheld available for tax credit = 9,020 × 10% = 902 CY

Tax credit in US dollars = 902 CY / 8.2781 CY/USD = USD 108.96

土豆妮

Simon Rosen, CFA, a portfolio manager for the Asian Spec Fund, recently purchased 1,000 shares of China Petroleum at a price of 271.11 Chinese yuan (CY) on the Shanghai Stock Exchange. The current exchange rate at the time was 8.2781 CY to one USD. China Petroleum paid an annual dividend of 9.02 CY per share and dividends are subject to 10 percent withholding tax. Capital gains taxes and dividends are 20 percent for the U.S. Simon sold all of his holdings in China Petroleum one year later at a price of 325.33 CY. Assume that the U.S. tax laws allow a full tax credit for taxes paid on international investments. Further assume that over the course of the year, exchange rates remained constant. The amount of capital gain after taxes are paid on the sale (in U.S. dollars) is:

A) USD 43,376.05.

B) USD 6,549.81.

C) USD 5,239.85.

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Gross proceeds on the sale (USD) = (325.33 CY × 1000 shares) / 8.2781 CY/USD = USD39,300.08

Cost of investment (USD) = (271.11 CY × 1000 shares) / 8.2781 CY/USD = USD32,750.27

Gross capital gain (USD) = USD39,300.08 – USD32,750.27 = USD6,549.81

Net capital gain after tax = USD6,549.81 × (1 – 0.20) = USD5,239.85

土豆妮

Simon Rosen, CFA, a portfolio manager for the Asian Spec Fund, recently purchased 1,000 shares of China Petroleum at a price of 271.11 Chinese yuan (CY) on the Shanghai Stock Exchange. The current exchange rate at the time was 8.2781 CY to one U.S. dollar (USD). China Petroleum paid an annual dividend of 9.02 CY per share and dividends are subject to 10% withholding tax. Capital gains taxes and dividends are 20% for the U.S. Simon sold all of his holdings in China Petroleum one year later at a price of 325.33 CY. Assume that the U.S. tax laws allow a full tax credit for taxes paid on international investments. Further assume that over the course of the year, exchange rates remained constant. The total after tax return on this investment is:

A) 18.66%.

B) 20.00%.

C) 18.99%.

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Gross proceeds on the sale (USD) = (325.33 CY × 1,000 shares) / 8.2781 CY/USD = USD39,300.08

Cost of investment (USD) = (271.11 CY × 1,000 shares) / 8.2781 CY/USD = USD32,750.27

Gross capital gain (USD) = USD39,300.08 ? USD32,750.26 = USD6,549.81

Net capital gain after tax = USD6,549.81 × (1 ? 0.20) = USD5,239.85

CY dividend paid = 9.02 CY × 1000 = 9,020 CY

Dividend Paid (USD) = 9020 CY / 8.2781 CY/USD = USD1,089.62

Dividend received after withholding tax = USD1,089.62 × (1 ? 0.10) = USD980.66

U.S. Taxes on dividends = USD1,089.62 × 20% = USD217.92

Tax withheld available for tax credit = 9,020 × 10% = 902 CY

Tax credit in US dollars = 902 CY / 8.2781 CY/USD = USD 108.96

Total after-tax return = [(5,239.85 + 980.66) ? 217.92 + 108.96] / 32,750.26 = 18.66%