Which of the Following Statements Best Describes the Tax Clientele

question 12

Multiple Choice

Which of the following statements best describes the tax clientele argument?

• A)Investors subject to high personal tax rates would prefer shares of companies that pay low dividends.
• B)Investors subject to high personal tax rates would prefer shares of companies that pay high dividends.
• C)Investors subject to high personal tax rates are indifferent to the dividend payout rate.
• D)Investors subject to high personal tax rates would prefer shares of companies that promise low capital gains.

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Definitions:

Corporate Bond

A type of debt security issued by corporations to raise capital, with the obligation to pay back the principal along with interest.

Interest Rates

The percentage charged on a loan or earned through an investment, typically expressed annually as a fraction of the principal.

Bond Prices

The amount of money investors are willing to pay for existing bonds, influenced by interest rates, credit quality, and time to maturity.

Non-amortizable Debt

Debt that does not require regular principal payments over its life; interest may be paid periodically, but the principal is repaid at maturity.