The expected pretax return on three stocks is divided between dividends and capital gains in the following
Question:
The expected pretax return on three stocks is divided between dividends and capital gains in the following way:
StockExpected DividendExpected Capital Gain
A$0$11
B$15$15
C$300
a. If each stock is priced at $100, what are the expected net percentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
StockPensionInvestor CorporationIndividual
A______%_________%_____%
B______%_________%_____%
C______%_________%_____%
Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an after-tax return of 8%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
StockPrice
A%_____
B%_____
C%_____