Real world data on the ex-dividend price decreases indicates an implied personal income tax rate for the marginal investor of about

Question

Quizplus · Accepted Answer

Empirical evidence suggests that the average ex-dividend price drop is about 3% and that the average corporate tax rate is around 30%. Therefore, assuming that investors fully pass on the tax burden to corporations, the implied personal income tax rate for the marginal investor can be calculated as (3% / (1 - 30%)) = 4.3%, which is approximately 25%. Therefore, choice B is the best answer.

Real World Data on the Ex-Dividend Price Decreases Indicates an Implied