When Taxes Alter Individual Behavior as People Attempt to Avoid

question 54

Multiple Choice

When taxes alter individual behavior as people attempt to avoid the tax, efficiency

• A)losses are probable.
• B)gains are possible.
• C)gains are impossible.
• D)losses are impossible.

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Definitions:

Yield to Maturity

The total return anticipated on a bond if it is held until the date of maturity, accounting for interest payments and capital gains.

Call Premium

The amount by which the price of a call option exceeds its intrinsic value, reflecting the cost to buy the option.

Yield to Call

The return a bondholder can expect if the bond is held until the call date, before the bond's maturity.

Annual Coupon

The yearly interest payment made by a bond to its holder.