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Question 2 Firm B pays a quarterly dividend of $1. Suppose that the stock price is expected to fall on the ex- dividend date by
Question 2 Firm B pays a quarterly dividend of $1. Suppose that the stock price is expected to fall on the ex- dividend date by $0.80. a) Would you prefer to buy on the with-dividend date or the ex-dividend date if you were a tax- free investor? Explain. (5 marks) b) If you were an investor with a marginal tax rate of 35 percent on dividend income, what would be your choice? Explain. (10 marks) c) If you were an investor with a marginal tax rate of 35 percent on dividend income and 15 percent on capital gains, what would be your choice? Explain. (10 marks)
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