A bond portfolio and a stock portfolio both provided an unrealized pretax return of 8% to a taxable investor. If the stocks paid

Question

Minchanka [31]

4 years ago

15

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 ________.

Business

1 answer:

tankabanditka [31] · Answer 1 · 2021-11-23T09:50:42+03:00

Answer:

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 ________.

The after-tax return of the stock portfolio was higher than the after-tax return of the bond portfolio.

Explanation:

The returns from the bond portfolio are taxed at the corporate rate while returns from stock investments are taxed at a lower rate. It is well-known that the risks from stock are higher than the risks from bonds. As a result, the stock investments always attract higher returns and less tax, as the investor can postpone the tax for a longer term. Again, stock investments can be for the long-term unlike bonds that have defined periods.