Consider the following equation: P_retain = P_cum × The term τ_i in this equation represents A) the corporation's tax rate on interest income. B) the investor's tax rate on capital gains. C) the investor's tax rate on interest income. D) the investor's tax rate on cumulative dividends.

Question

Quizplus · Accepted Answer

τ_i represents the investor's tax rate on interest income. This is because the equation is calculating the after-tax value of a stock with cumulative dividends (P_retain) by multiplying it with a cumulative dividend factor (P_cum) and then multiplying it by the factor (11ea7db1_bd4d_89f3_b9bd_f3818eb45331_TB1619_11), which is a function of the investor's tax rate on interest income.

Consider the Following Equation: Pretain = Pcum × the Term

Consider the Following Equation: P_retain = P_cum × the Term