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Consider the following tax rates: Year Capital Gains Rate Ordinary Income Rate Dividend Rate 1997-2000 20% 40% 40% 2001-2002 20% 39% 39% 2003- 15% 35%

Consider the following tax rates:

Year

Capital Gains Rate

Ordinary Income Rate

Dividend Rate

1997-2000

20%

40%

40%

2001-2002

20%

39%

39%

2003-

15%

35%

15%

*The current tax rates are set to expire in 2008 unless Congress extends them. The tax rates shown are for financial assets held for one year. For assets held less than one year, capital gains are taxed at the ordinary income tax rate (currently 35% for the highest bracket); the same is true for dividends if the assets are held for less than 61 days.

Using the available tax information for 2002, calculate the effective dividend tax rate for a:

(1) one-year individual investor

(2) buy and hold individual investor

(3) pension fund

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