The Dividend Yield Effect May Be Explained by the Fact

question 13

Multiple Choice

The dividend yield effect may be explained by the fact that:

• A)if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax capital gains to a dollar of before-tax dividends.
• B)if dividends are taxed more heavily than capital gains,investors will prefer a dollar of before-tax dividends to a dollar of before-tax capital gains.
• C)investors will require high before-tax returns on shares that pay low dividends in order to compensate them for the higher tax burden that the capital gains will impose.
• D)none of the given options.

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Definitions:

Term Structure

The connection between different terms or maturities and interest rates or bond yields.

Fisher Formula

An equation used to identify the nominal interest rate or the required rate of return on an investment, taking inflation into account to determine the real interest rate.

Coupon

The interest rate on a bond, usually expressed as a percentage of the face value and paid at regular intervals.

Semi-Annually

A period or process that occurs twice each year.