OnMonday,November15,2004,TheStreet.comreported:Anexperimentintheefficiencyof financial markets will play out Monday following the expiration of a $3.08 dividend privilege for holders of Microsoft. The story went on: The stock is currently trading ex-dividend both the special $3 payout and Microsofts regular $0.08 quarterly dividend, meaning a buyer doesnt receive the money if he acquires the shares now. Microsoft stock ultimately opened for trade at $27.34 on the ex-dividend date (November 15), down $2.63 from its previous close.

a. Assuming that this price drop resulted only from the dividend payment (no other informa- tion affected the stock price that day), what does this decline in price imply about the effec- tive dividend tax rate for Microsoft?

b. Based on this information, which of the following investors are most likely to be the marginal investors (the ones who determine the price) in Microsoft stock: i. long-term individual investors, ii. one-year individual investors, iii. pension funds, iv. corporations