Suppose that there are just three types of investors with the following tax rates: Individuals Corporations Institutions Dividends 40 % 20 % 0 % Capital gains 20 50 0 Individuals invest a total of $81.9 billion in stock and corporations invest $12.28 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

Suppose that there are just three types of Investors with the following tax rates: Dividends Capital gains Individuals 40% 20 Corporations 20% 50 Institutions 8% 0 Individuals Invest a total of $81.9 billion in stock and corporations Invest $12.28 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 $ 6 6 High Payout $ 35 Dividends Capital gains 16 These payoffs are expected to persist in perpetulty. The low-payout stocks have a total market value of $101.9 billion, the medium- payout stocks have a value of $51.9 billion, and the high-payout stocks have a value of $121.9 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? c. Calculate the after-tax returns of the three types of stock for each Investor group. d. What are the dollar amounts of the three types of stock held by each Investor group? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Calculate the after-tax returns of the three types of stock for each investor group. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Institutions % Individuals % Corporations % Low-payout stock Medium-payout stock High-payout stock % % % % %