A stock that pays a dividend of $0.90 closed at $62 on the cum-dividend date and opened the next day at $61.37. What is the implied personal tax rate of the marginal investor?

Question

Quizplus · Accepted Answer

To calculate the implied personal tax rate, we need to use the formula:

Implied personal tax rate = [(Dividend per share / Ex-dividend price) - 1] x (1 - Tax rate)

Plugging in the given values, we get:

0.90 / 62 = 0.0145
1 - (61.37 / 62) = 0.0105

Therefore, [(0.0145) / (0.0105)] - 1 = 0.381
And, 0.381 x (1 - Tax rate) = Tax rate

Solving for Tax rate, we get approximately 30%. Therefore, the answer is B.

A Stock That Pays a Dividend of $0