Stock Expected Dividend Expected Capital Gain A $0 $10 B $5 $5 C $10 $0 A.) If each stock is priced at $175, what are the expected net precentage 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 10% on dividends and 5% on capital gains?
Stock Expected Dividend Expected Capital Gain A $0 $10 B $5 $5 C $10 $0 A.) If each stock is priced at $175, what are the expected net precentage 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 10% on dividends and 5% on capital gains?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
| Stock | Expected Dividend | Expected Capital Gain |
| A | $0 | $10 |
| B | $5 | $5 |
| C | $10 | $0 |
A.) If each stock is priced at $175, what are the expected net precentage 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 10% on dividends and 5% on
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.
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