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

Question:

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

Individuals invest a total of $80 billion in stock and corporations invest $10 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:

These payoffs are expected to persist in perpetuity. The low-payout stocks have a total market value of $100 billion, the medium-payout stocks have a value of $50 billion, and the high-payout stocks have a value of $120 billion.
a. Who are the marginal investors that determine the prices of the stocks?
b. Suppose that this marginal group of investors requires a 12% after-tax return. 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 investorgroup?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...