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Firm X will pay a dividend of $10 next year and its stock is expected to sell at $100 after the payment. Firm Y pays
Firm X will pay a dividend of $10 next year and its stock is expected to sell at $100 after the payment. Firm Y pays no dividend but its stock is expected to sell at $110. Dividends are taxed at 37% and capital gains are untaxed. If both stocks offer an after-tax return of 8%, what is the price of the two stocks?
A. Price of X = $98.43; price of Y = $100
B. Price of X = $101.85; price of Y = $101.85
C. Price of X = $100; price of Y = $101.85
D. Price of X = $98.43; price of Y = $101.85
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