What Capital Gain Must a Non-Dividend-Paying Stock Attain in Order

question 51

Multiple Choice

What capital gain must a non-dividend-paying stock attain in order for a corporate investor in the 35% tax bracket to be indifferent to a stock paying an 8% dividend but having no capital gain?

• A)8.00%
• B)9.29%
• C)11.02%
• D)12.31% After-tax return on dividend-paying stock:
• = 8% - (8% x .3 x .35)
• = 8% - .0084
• = 7)16%
• After-tax return on non-dividend-paying stock:
• = capital gain (1 - .35)
• 7)16% = .65 x capital gain

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Definitions:

Nicotine

A stimulant and addictive substance found in tobacco, responsible for the habit-forming nature of tobacco use.

Placebo

A substance with no therapeutic effect, used as a control in testing new drugs or used to elicit a psychological benefit.

Nicotine

A stimulant and addictive substance found in tobacco products that affects the nervous system.

Dependent Variable

In an experiment, the variable that is being tested and measured, expected to change as a result of manipulations to the independent variable.