The expected pretax return on three stocks is divided between dividends and capital gains in the following way:
Stock Expected
Dividend Expected
Capital Gain
A $0 $36
B 18 18
C 36 0
a.
If each stock is priced at $100, what are the expected net returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 35%, and (iii) an individual with an effective tax rate of 15% on dividends and 10% on capital gains? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Stock Pension Investor
Corporation Individual
A % % %
B % % %
C % % %
b.
Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an 8% return after tax, 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 P0
A $
B
C

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The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Stock Expected Dividend Expected Capital Gain A $0 $28 B …