FINE 2000 Chapter 11-15: Solutions Chapters 11-15
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The expected pretax return on three stocks is divided between dividends and capital gains in the following way: |
Stock | Expected Dividend | Expected Capital Gain |
A | $ 0 | $ 7 |
B | 2 | 2 |
C | 23 | 0 |
a. | If each stock is priced at $100, 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 45% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) |
Stock | Pension | Investor Corporation | Individual |
A | % | % | % |
B | % | % | % |
C | % | % | % |
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 | Price |
A | $ |
B | $ |
C | $ |
The expected pretax return on three stocks is divided between dividends and capital gains in the following way: |
Stock | Expected Dividend | Expected Capital Gain |
A | $ 0 | $ 3 |
B | 13 | 13 |
C | 27 | 0 |
If each stock is priced at $100, 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 45% (The effective tax rate on dividends received by corporations is 10.5%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) |
Stock | Pension | Investor Corporation | Individual |
A | % | % | % |
B | % | % | % |
C | % | % | % |
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 | Price |
A | $ |
B | $ |
C | $ |
The expected pretax return on three stocks is divided between dividends and capital gains in the following way: |
Stock | Expected Dividend | Expected Capital Gain |
A | $ 0 | $ 4 |
B | 10 | 10 |
C | 26 | 0 |
a. | If each stock is priced at $100, 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 35% (The effective tax rate on dividends received by corporations is 10.5%), 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 | Pension | Investor Corporation | Individual |
A | % | % | % |
B | % | % | % |
C | % | % | % |
b. | 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 | Price |
A | $ |
B | $ |
C | $ |