The Tax Clientele Effect Implies That Share Price Is Indifferent

question 31

Multiple Choice

The tax clientele effect implies that share price is indifferent to dividend policy because:

• A)share price depends on the value of assets in place.
• B)investors have no say in dividend policy.
• C)in equilibrium,the range of dividend policies available satisfies the needs of investors so that one clientele is as good as another.
• D)investors in high marginal tax brackets would pay a premium for shares of companies that pay no dividends.

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Definitions:

Unsystematic Risk

The risk tied to a specific company or industry that can be minimized through diversification, unlike market-wide systemic risk.

Systematic Risk

The inherent risk associated with the entire market or market segment, also known as market risk, which cannot be diversified away.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points, indicating how much the individual data points diverge from the mean value of the data set.

Portfolio Returns

The overall gains or losses generated by an investment portfolio over a specified period, often expressed as a percentage.