Reference no: EM133200666

The expected pretax return on three stocks is divided between dividends and capital gains in the following way:

Stock A - Expected Dividend $0  Expected Capital Gain $10

Stock B - Expected Dividend $5   Expected Capital Gain $5

Stock C - Expected Dividend $10 Expected Capital Gain $0

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? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Stock A 

Pension Fund% -

Corporation % - 7.20

Individual % -

Stock B 

Pension % -

Investor Corporation % -

Individual % -

Stock C 

Pension % -

Investor Corporation % -

Individual % -

Suppose that investors pay 50% tax on dividends and 20% tax on capital gains. If stocks are priced to yield an after-tax return of 8%, 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 A

Price

Stock B

Price

Stock C

Price