The expected pretax return on three stocks Is divided between dividends and capital galns in the following way: Еxpected Capital Expected Stock Dividend Gain A $0 $10 10 Required: a. If each stock Is priced at $160, what are the expected net percentage returns on each stock to (1) a penslon fund that does not pay taxes, (II) a corporation paylng tax at 21% (the effective tax rate on divldends recelved by corporations Is 6.3%), and (III) an Individual with an effective tax rate of 15% on dividends and 10% on capital galns? b. Suppose that Investors pay 50% tax on dividends and 20% tax on capital galns. If stocks are priced to yleld an after-tax return of 8%, what would A, B. and Ceach sell for? Assume the expected dividend Is a level perpetulty.
The expected pretax return on three stocks Is divided between dividends and capital galns in the following way: Еxpected Capital Expected Stock Dividend Gain A $0 $10 10 Required: a. If each stock Is priced at $160, what are the expected net percentage returns on each stock to (1) a penslon fund that does not pay taxes, (II) a corporation paylng tax at 21% (the effective tax rate on divldends recelved by corporations Is 6.3%), and (III) an Individual with an effective tax rate of 15% on dividends and 10% on capital galns? b. Suppose that Investors pay 50% tax on dividends and 20% tax on capital galns. If stocks are priced to yleld an after-tax return of 8%, what would A, B. and Ceach sell for? Assume the expected dividend Is a level perpetulty.
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 galns in the following way:
Еxpected
Capital
Expected
Stock
Dividend
Gain
A
$0
$10
10
Required:
a. If each stock Is priced at $160, what are the expected net percentage returns on each stock to (1) a penslon fund that does not pay
taxes, (II) a corporation paylng tax at 21% (the effective tax rate on divldends recelved by corporations Is 6.3%), and (III) an Individual
with an effective tax rate of 15% on dividends and 10% on capital galns?
b. Suppose that Investors pay 50% tax on dividends and 20% tax on capital galns. If stocks are priced to yleld an after-tax return of 8%,
what would A, B. and Ceach sell for? Assume the expected dividend Is a level perpetulty.
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