A bond portfolio and a stock portfolio both provided an unrealized pretax return of 8% to a taxable investor. If the stocks paid no dividends, we know that the ________.

Question

Quizplus · Accepted Answer

The after-tax return of the stock portfolio was higher than that of the bond portfolio because the stocks paid no dividends, meaning their return was likely in the form of capital gains. Capital gains are often taxed at a lower rate than the interest income from bonds, resulting in a higher after-tax return for the stock portfolio.

A Bond Portfolio and a Stock Portfolio Both Provided an Unrealized