Answer the following question twice, once assuming current tax law and once assuming zero tax on capital
Question:
Answer the following question twice, once assuming current tax law and once assuming zero tax on capital gains.
Suppose all investments offered the same expected return before tax. Consider two equally risky shares, Hi and Lo. Hi shares pay a generous dividend and offer low expected capital gains. Lo shares pay low dividends and offer high expected capital gains. Which of the following investors would prefer the Lo shares? Which would prefer the Hi shares?
Which should not care? (Assume that any stock purchased will be sold after one year.)
a. A pension fund.
b. An individual.
c. A corporation.
d. A charitable endowment.
e. A security dealer.
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