Suppose That the Pre-Tax Holding Period Returns on Two Stocks

question 83

Multiple Choice

Suppose that the pre-tax holding period returns on two stocks are the same.Stock A has a high dividend payout policy and stock B has a low dividend payout policy.If you are an individual in a high marginal tax bracket and do not intend to sell the stocks during the holding period,__________.

• A)stock A will have a higher after-tax holding period return than stock B
• B)the after-tax holding period returns on stocks A and B will be the same
• C)stock B will have a higher after-tax holding period return than stock A
• D)it is impossible to determine which stock will have a higher after-tax holding period return given the information available
• E)none of the above

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Definitions:

Sarbanes-Oxley Act

A United States federal law enacted in 2002 to protect investors from fraudulent financial reporting by corporations.

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A financial account maintained by a banking institution in which the account holder can deposit or withdraw money.