Question: The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Stock A Expected Dividend $0 5 10

The expected pretax return on three stocks is divided between dividends

The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Stock A Expected Dividend $0 5 10 Expected Capital Gain $10 5 0 Questions: a. If each stock is priced at $195, what are the expected net percentage returns on each stock to (1) 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 10% on dividends and 5% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Stock Pension Individual Investor Corporation % % % % % B % % b. Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after- tax return of 10%, 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.) Price Stock B C

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