Consider time 0, 1, and 2. A dividend is paid at time 1. The ex-dividend date = dividend payment date. For individual shareholders, the personal tax rate on dividend is 40% and that on capital gains is 15%. For institutional shareholders, the personal tax rate on dividend is 2% and that on capital gains is 50%. The after-tax expected return on equity is 20% between time 0 and time 1, and 10% between time 1+ and time 2. The stock price is worth 1000 at time 0. The stock price is expected to be worth 1200 at time 2. *Remark: The notation t+ stands for time t right after cash-flows have been paid.

Place yourself at time 0.

A) (3 points) What is the (expected) price of the stock, at time 1, right before the dividend is paid when all shareholders are individuals (P c i (1))? Remark: This price is the so-called cum-dividend price.

B (3 points) What is the (expected) price of the stock, at time 1, right before the dividend is paid when all shareholders are institutions (P c f (1))? Remark: This price is the so-called cum-dividend price.