Can someone help me with this task?
The listed company ABC pays an annual dividend of $1 per share. As soon as the stock is traded without the right to the dividend, the value of the stock (Pcum - Pex) is reduced by 84 cents. Assume that the capital gains tax is 18% and that shareholders pay different taxes on dividends.
In the absence of transaction costs, what is the maximum tax rate on dividends for an investor who retains the stock to secure the dividend and then sells the stock as soon as it is traded without the right to the dividend? Briefly explain what your answer means in terms of the choice of optimal trading strategy.
In the absence of transaction costs, what is the maximum tax rate on dividends for an investor who retains the stock to secure the dividend and then sells the stock as soon as it is traded without the right to the dividend? Briefly explain what your answer means in terms of the choice of optimal trading strategy.
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