(A) institutional investors (B) corporate investors © tax-exempt investors (D) wealthy individual investors
Portfolio Wrote: ------------------------------------------------------- > (A) institutional investors > (B) corporate investors > © tax-exempt investors > (D) wealthy individual investors YOU GOT ME! LOW PAYOUT = LOW DIVIDEND, WE KNOW DIVIDENDS GET TAXED TWICE, NOT SURE WHERE TO GO WITH THIS
I would say either c or D, reasons are wealthy investors then dont get taxed on the divs(but they will get a huge taxable gain on disposition of the shares) a tax exempt investor wouldn’t be taxed @ dispostion. I remember reading this though, just cant remember
getterdone Wrote: ------------------------------------------------------- > I would say either c or D, reasons are wealthy > investors then dont get taxed on the divs(but they > will get a huge taxable gain on disposition of the > shares) > > a tax exempt investor wouldn’t be taxed @ > dispostion. > > I remember reading this though, just cant remember anyone? I only have my quant/econ books with me, and secret sauce, and secret sauce does not get into micro topics like this.
may be B? not sure on this one
I’m going with D, wealthy investors. They will have the highest tax brackets and will benefit the most from income through capital gains over dividends. With a low payout ratio, company can invest more and the growth rate should be higher. Therefore, stock should appreciate more and capital gains will be greater.
D is definately NOT the right answer
And why?
I was thinking D too. Can you please tell us the ans ?
B double taxed…?
I thought for sure D. Dividends are taxed as ordinary income, and wealth investors like low payout securities for this reason since long term capital gains are less than ordinary income.
I think people saying ‘B’ are confused when they’re saying double taxed. Are you thinking of the fact that a corporation pays tax on their earnings and subsequently the investors in those companies pay tax on the dividends? This is a very different concept. I believe this question is thinking about corporations as investors, not as the issuers of dividends. A corporation is not ‘double taxed’ on their investments!
Right, it means the corp pays dividends after they are taxed (strike 1). Then investors need to pay taxes on dividends received for their federal/state income taxes (strike 2).
D
Wealthy investors care for low paying stocks only if they are in high tax brackets. Tax-exempt investors would have little benefit from the investment, would rather invest in higher paying stocks. Corporate investors would not fall in love with low paying stocks, since, on their side too, they report to shareholders. Institutional investors (mutual funds, investment companies, brokerages, insurance companies) are less protected than all other investors, because it is considered they have the knowledge to manage the investment funds, so I guess A is the answer.
Can the original poster please post the answer at this point?
KJH Wrote: ------------------------------------------------------- > I thought for sure D. Dividends are taxed as > ordinary income, and wealth investors like low > payout securities for this reason since long term > capital gains are less than ordinary income. So this hasn’t been true for 5 yrs… But I still think D is the answer. Institutiional investors include hugely different organizations including taxableand tax-exempt some of whom don’t care at all and some who do. Tax-exempt obviously don’t care. Corporate investors get the dividend received tax break. I think this is an outdated quesstion.
the answer is (B) and ©, I know CFA level I won’t have answers like A: A olnly B: B and C only C: A, B, C only D: A, B, C, D only but in this practice sample exam, the answer is B: (B) and © only
Nah… What explanation could they give for that?
I’m with Joey. That answer is totally groundless.