The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Expected Dividend Stock A $ 0 Expected Capital Gain $ 10 B C 3C 5 10 5 0 Required: a. If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does n pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) a 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 retur 8%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. Complete this question by entering your answers in the tabs below. Required A Required B If each stock is priced at $110, 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? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Stock Pension Investor Corporation Individual A % % % B % % % C % % % Show less A
The expected pretax return on three stocks is divided between dividends and capital gains in the following way: Expected Dividend Stock A $ 0 Expected Capital Gain $ 10 B C 3C 5 10 5 0 Required: a. If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does n pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) a 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 retur 8%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity. Complete this question by entering your answers in the tabs below. Required A Required B If each stock is priced at $110, 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? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Stock Pension Investor Corporation Individual A % % % B % % % C % % % Show less A
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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Transcribed Image Text:The expected pretax return on three stocks is divided between dividends and capital gains in the following way:
Expected
Dividend
Stock
A
$ 0
Expected
Capital Gain
$ 10
B
C
3C
5
10
5
0
Required:
a. If each stock is priced at $110, what are the expected net percentage returns on each stock to (i) a pension fund that does n
pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) a
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 retur
8%, what would A, B, and C each sell for? Assume the expected dividend is a level perpetuity.
Complete this question by entering your answers in the tabs below.
Required A
Required B
If each stock is priced at $110, 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?
Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.
Stock
Pension
Investor Corporation
Individual
A
%
%
%
B
%
%
%
C
%
%
%
<Required A
Required
>
Show less A
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