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Consider time 0, 1, and 2. A dividend is paid at time 1. The ex-dividend date = dividend payment date. For individual shareholders, the personal tax rate on dividend is 40% and that on capital gains is 15%. For institutional shareholders, the personal tax rate on dividend is 2% and that on capital gains is 50%. The after-tax expected return on equity is 20% between time 0 and time 1, and 10% between time 1+ and time 2. The stock price is worth 1000 at time 0. The stock price is expected to be worth 1200 at time 2. Remark: The notation t+ stands for time t right after cash-flows have been paid.

Place yourself at time 1+.

1. .
   1. (3 points) Compute the before-tax expected return on the stock between time 1+ and time 2 when all shareholders are individuals (r_S,i(1+)).
   2. (3 points) Compute the before-tax expected return on the stock between time 1+ and time 2 when all shareholders are institutions (r_S,f(1+)).
   3. (3 points) Compute the dividend paid at time 1 when all shareholders are individuals (D_i(1)).
   4. (3 points) Compute the dividend paid at time 1 when all shareholders are institutions (D_f(1)).
   5. (3 points) What is the (expected) price of the stock, at time 1, right before the dividend is paid when all shareholders are individuals (P^c(i1))? Remark: This price is the so-called cum-dividend price.
   6. (3 points) What is the (expected) price of the stock, at time 1, right before the dividend is paid when all shareholders are institutions (P^c(f1))? Remark: This price is the so-called cum-dividend price.

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