Reading 35: Equity: Markets and Instruments- LOS c～ Q1-3

exchange, recently, Shanghai, different, investment

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

Q1. 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 1,089.62.

B) USD 902.00.

C) USD 108.96.

Q2. 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 5,239.85.

B) USD 43,376.05.

C) USD 6,549.81.

Q3. 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%.