Suppose that there are just three types of investors with the following tax rates: Dividends Capital gains Individuals 35% 20 Corporations 10% 10 Institutions 0% 0 Individuals invest a total of $80.5 billion in stock and corporations invest $10.60 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: Medium Payout Dividends Capital gains Low Payout $ 10 20 $10 10 High Payout $ 32 0 These payoffs are expected to persist in perpetuity. The low-payout stocks have a total market value of $100.5 billion, the medium-payout stocks have a value of $50.5 billion, and the high-payout stocks have a value of $120.5 billion. a. Who are the marginal investors that determine the prices of the stocks? 0 Individuals O Institutions O Corporations b. Suppose that this marginal group of investors requires an after-tax return of 14%. What are the prices of the low-, medium-, and high-payout stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) $ 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. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Individuals % Corporations % Low-payout stock Medium-payout stock High-payout stock Institutions % % % % % % % d. What are the dollar amounts of the three types of stock held by each investor group? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) Institutions $ Individuals $ Corporations $ Low-payout stock Medium-payout stock High-payout stock $ $ $ $ $ $ Suppose that there are just three types of investors with the following tax rates: Dividends Capital gains Individuals 35% 20 Corporations 10% 10 Institutions 0% 0 Individuals invest a total of $80.5 billion in stock and corporations invest $10.60 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: Medium Payout Dividends Capital gains Low Payout $ 10 20 $10 10 High Payout $ 32 0 These payoffs are expected to persist in perpetuity. The low-payout stocks have a total market value of $100.5 billion, the medium-payout stocks have a value of $50.5 billion, and the high-payout stocks have a value of $120.5 billion. a. Who are the marginal investors that determine the prices of the stocks? 0 Individuals O Institutions O Corporations b. Suppose that this marginal group of investors requires an after-tax return of 14%. What are the prices of the low-, medium-, and high-payout stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) $ 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. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Individuals % Corporations % Low-payout stock Medium-payout stock High-payout stock Institutions % % % % % % % d. What are the dollar amounts of the three types of stock held by each investor group? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) Institutions $ Individuals $ Corporations $ Low-payout stock Medium-payout stock High-payout stock $ $ $ $ $ $
