1. Which of the following statements is most correct?
a. Because taxes on long-term capital gains are not paid until the gain is realized, investors must pay the top individual tax rate on that gain.
b. 70% of the interest received by corporations is excluded from taxable income.
c. 70% of the dividends received by corporations is excluded from taxable income.
d. The corporate tax system favors equity financing, as dividends paid are deductible from corporate taxes.
e. Retained earnings, as reported on the balance sheet, represents the amount of cash a company has available to pay out as dividends to shareholders.
2. The T-Bill yields 3%. The optimal risky portfolio has a return of 9.5% and the standard of deviation of 20%. What is the slope of the CAL (i.e., reward-to-volatility ratio)?
0.1583
0.4750
0.2000
0.3250