Which of the following statements is correct?
A)In countries where there are no taxes, corporations should use debt.
B)In countries where capital gains are taxed, investors should prefer to own stocks rather than bonds.
C)In countries where capital gains are not taxed, equity capital costs should be high.
D)In countries where dividends are not taxed, the investors should prefer to own bonds rather than stocks.
E)In countries where capital gains are not taxed, investors should prefer to own stocks rather than bonds.

Question

Quizplus · Accepted Answer

In countries where capital gains are not taxed, investors should prefer to own stocks rather than bonds. This is because stocks offer the potential for greater long-term returns through capital appreciation, whereas bonds offer a fixed rate of return. Therefore, in a tax-free environment, investors can benefit from the tax-free capital gains on stocks, whereas the tax advantage of owning bonds is diminished.

Which of the Following Statements Is Correct