Other things equal,an increase in the tax on dividends is likely to result in all of the following EXCEPT
A) higher expected return on bonds relative to stocks.
B) increased demand for bonds.
C) lower interest rates.
D) higher interest rates.

Question

Quizplus · Accepted Answer

An increase in tax on dividends is likely to result in higher expected return on bonds relative to stocks (A) and increased demand for bonds (B) as investors search for alternatives to dividend-paying stocks. Lower interest rates (C) are also likely, as investors shift their money into bonds, which drives down interest rates. Therefore, the only incorrect option is D (higher interest rates).

Other Things Equal,an Increase in the Tax on Dividends Is