A. The expected pretax return on three stocks is divided between dividends and capital gains in
the following way:
Required: a. If each stock is priced at $105, 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 10% on dividends and 5% on capital gains?
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.
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.)
stock expected dividend expected capital gain
A $0 $10
B $5 $5
C $10 $0.
Introduction to ArtificiaI Intelligence in Higher Education
A- The expected pretax return on three stocks is divided between divid.pdf
1. A. The expected pretax return on three stocks is divided between dividends and capital gains in
the following way:
Required: a. If each stock is priced at $105, 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 10% on dividends and 5% on capital gains?
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.
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.)
stock expected dividend expected capital gain
A $0 $10
B $5 $5
C $10 $0
