Consider the following equation: P_cum - P_ex= Div × The term τ_g is: A)the personal tax rate for dividend. B)the personal tax rate for capital gains. C)the price per share before a dividend is paid. D)the price per share after a dividend is paid.

Question

Quizplus · Accepted Answer

According to the equation, the term P_cum represents the price per share before a dividend is paid, while P_ex represents the price per share after a dividend is paid. Therefore, the difference between these two terms (P_cum - P_ex) represents the amount of the dividend. The term Div × 11ea7cce_3cc2_8749_928c_51d7bc10d047_TB1626_11 represents the tax on the dividend. Therefore, by dividing this term by the amount of the dividend (P_cum - P_ex), we can calculate the tax rate on the dividend. Hence, the term τ_g represents the personal tax rate on capital gains.

Consider the Following Equation