CFA Practice Question

There are 151 practice questions for this study session.

CFA Practice Question

Which of the following investors have the strongest tax reason to prefer dividends over capital gains?

A. Pension funds
B. Financial institutions
C. Individuals
D. Corporations
Correct Answer: D

Corporations are tax averse to dividends.

User Contributed Comments 7

User Comment
drago Because of the 80% DRD (examption of dvds for tax)
rockeR I dont understand this
because according to notes, investors prefer the capital gain rather than payout becoz of lower tax on capital gain.
Am I wrong?
setmefree what's wrong with pension funds?
katybo Pension funds would be indifferent according to the reading. Individuals would prefer capital gains cause they can defer taxes. Corporations not clear to me.
Done The reason why corporations is that they receive a 70% deduction on dividends not 80%. However Bush has changed a lot of things with the tax code so this could be higher. I learned about this from the Series 7
quynhnk79 what does 70%/80% deduction means in this case?
is it the tax deduction for individual who receive dividend or for the companies who pay out the dividend? Neither supports the answer.
Who can help me? Please!
achu Corporations receving a dividend from other companies they invest in (Say, company A owns stock in company B), only pay tax on 20 or 30% of the dividend income (used to be 30%, as 70% was exempt). The idea is to offset 'triple taxation' to investors in Company A. Otherwise, dividends from Company B get taxed, then taxed agiain when the dividend goes to company A, and then the company A investor gets taxed again.
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