Answer:
Question option include: a. if Helen's marginal tax rate is 35 percent, how much would she save by holding the stock an additional month before selling? b. what might prevent Helen from waiting to sell?
Solution
Per share increase in price = $20
No of shares = 1000
Total capital gain = 1000 * $20 = $20,000
Tax rate if hold for one year more = $20,000 * 15% = $3,000
If sold immediately and taxed as short term capital gain, then = $20,000 * 35% = $7,000
So if shares are held for more than a month a tax of {($7000 - $3000) = $4,000} can be saved.
b In a month shares prices may fall and capital appreciation would be reduced and this will increase the risk associated with the investment and she will not to wait for the liquidity for a month more.
