+ Assume that there are three groups of investors with the following tax rates and investable funds: Group Investable Funds ($ millions) Tax Rate (percent) 375 ABC 220 105 50 32.5 10 Each group requires a minimum after-tax return of 8.1 percent on any security. The only types of securities are equity and perpetual corporate bonds. Interest from corporate bonds is subject to personal tax, but it is deductible for corporate tax purposes. Capital gains from equity are untaxed at the personal level. In equilibrium, equity yields an 8.1 percent pre-tax return. Assume the equity and bonds are both risk-free. Corporate earnings before interest and taxes total $85 million each year in perpetuity. The corporate tax rate is 35 percent. Required: (a) What is the equilibrium market rate of interest on corporate bonds, hint: it is the rate that makes companies indifferent between issuing bonds or stocks? (b) In equilibrium, what is the composition of each of the groups' portfolios? (c) What is the total market value of all companies?