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.

(2) (3 points) Compute the dividend paid at time 1 when all shareholders are individuals (Di(1)

(3) (3 points) Compute the dividend paid at time 1 when all shareholders are institutions (Df (1)).