The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains . Introduction: The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

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Answer 1

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Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

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An insurance company has liabilities of £7 million due in 10 years' time and £9 million due in 17 years' time. The assets of the company consist of two zero-coupon bonds, one paying £X million in 7 years' time and the other paying £Y million in 20 years' time. The current interest rate is 6% per annum effective. Find the nominal value of X (i.e. the amount, IN MILLIONS, that bond X pays in 7 year's time) such that the first two conditions for Redington's theory of immunisation are satisfied. Express your answer to THREE DECIMAL PLACES.

An individual is investing in a market where spot rates and forward rates apply. In this market, if at time t=0 he agrees to invest £5.3 for two years, he will receive £7.4 at time t=2 years. Alternatively, if at time t=0 he agrees to invest £5.3 at time t=1 for either one year or two years, he will receive £7.5 or £7.3 at times t=2 and t=3, respectively. Calculate the price per £5,000 nominal that the individual should pay for a fixed-interest bond bearing annual interest of 6.6% and is redeemable after 3 years at 110%. State your answer at 2 decimal places.

The one-year forward rates of interest, f+, are given by: . fo = 5.06%, f₁ = 6.38%, and f2 = 5.73%. Calculate, to 4 decimal places (in percentages), the three-year par yield.

Answer 2

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Expert Solution & Answer

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Answer 3

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Expert Solution & Answer

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Answer 4

Question

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Expert Solution & Answer

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Answer 5

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Answer 6

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Answer 7

Chapter 17.3, Problem 1CC

Summary Introduction

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Answer 8

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Answer 11

Ch. 17.1 - Prob. 1CC Ch. 17.1 - Prob. 2CC Ch. 17.2 - Prob. 1CC Ch. 17.2 - In a perfect capital market, how important is the...Ch. 17.3 - Prob. 1CC Ch. 17.3 - Prob. 2CC Ch. 17.4 - Prob. 1CC Ch. 17.4 - Prob. 2CC Ch. 17.5 - Is there an advantage for a firm to retain its...Ch. 17.5 - Prob. 2CC

The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains . Introduction: The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Solution Summary: The author explains that the optimal dividend policy is to pay or distribute no dividends when the rate of tax of dividend exceeds the capital gains tax rate.

Concept explainers

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To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Want to see the full answer?

Chapter 17 Solutions

The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains . Introduction: The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

Solution Summary: The author explains that the optimal dividend policy is to pay or distribute no dividends when the rate of tax of dividend exceeds the capital gains tax rate.

Concept explainers

Videos

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains. Introduction: The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.

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Chapter 17 Solutions

To discuss: The optimal dividend policy when the rate of tax of the dividend exceeds the rate of tax of capital gains.

Introduction:

The shareholders of the company must pay a dividend tax when they receive the dividends and they have to pay capital gain taxes when they sell their shares.