Suppose that there are just three types of investors with the following tax rates:

	Individuals				Corporations				Institutions
Dividends		45	%			20	%				0	%
Capital gains		20				50					0

Individuals invest a total of $80.7 billion in stock and corporations invest $10.84 billion. The remaining stock is held by the institutions. All three groups simply seek to maximize their after-tax income. These investors can choose from three types of stock offering the following pretax payouts per share:

	Low Payout				Medium Payout				High Payout
Dividends		$	6			$	6			$	35
Capital gains			16				6				0

These payoffs are expected to persist in perpetuity. The low-payout stocks have a total market value of $100.7 billion, the medium-payout stocks have a value of $50.7 billion, and the high-payout stocks have a value of $120.7 billion.

A. Who are the marginal investors that determine the prices of the stocks?

B. Suppose that this marginal group of investors requires an after-tax return of 10%. What are the prices of the low-, medium-, and high-payout stocks?

Price of low-payout stock-

Price of medium-payout stock-

Price of high-payout stock-

C. Calculate the after-tax returns of the three types of stock for each investor group.

		Institutions		Individuals		Corporations
Low payout stock		%		%		%
Medium Payout Stock		%		%		%
High Payout Stock		%		%		%

D. What are the dollar amounts of the three types of stock held by each investor group?

Institutions	Individuals	Corporations
Low-payout stock
Medium-payout stock
High-payout stock