The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

StockExpected DividendExpected Capital Gain

A $0 $10

B 5 5

C 10 0

Required:

a.If each stock is priced at $150, 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 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains?

b.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.

For Part A Answers: If each stock is priced at $150, 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 21% (the effective tax rate on dividends received by corporations is 6.3%), 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.)

Stock Pension Investor corporation Individual

A % % %

B % % %

C % % %

For Part B Answers: 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.)

Stock Price

A $

B $

C $