Use the Information for the Question(s)below

question 74

Multiple Choice

Use the information for the question(s) below.
Consider the following tax rates: *The current tax rates are set to expire after 2025 unless Congress extends them.The tax rates shown are for financial assets held for one year.For assets held less than one year,capital gains are taxed at the ordinary income tax rate (currently 37% for the highest bracket) ;the same is true for dividends if the assets are held for less than 61 days.
-The effective dividend tax rate for a buy and hold individual investor in 1999 was closest to:

• A)25%.
• B)0%.
• C)20%.
• D)40%.

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Definitions:

Risk Averse

The preference to avoid uncertainty, referring to the behavior of investors who prefer lower returns with known risks over higher returns with unknown risks.

Risk-Free Rate

An ideal rate of return on an investment with no risk, typically represented by government bond yields.

Market Risk Premium

The increased return an investor hopes to gain by investing in a risky market portfolio rather than in assets free of risk.

Required Return

The minimum rate of return on an investment necessary to compensate the investor for the level of risk assumed.