Firm X Will a Dividend of $10 Next Year and Its

question 11

Multiple Choice

Firm X will a dividend of $10 next year and its stock is expected to sell at $100 after the payment.Firm Y pays no dividend but its stock is expected to sell at $110.Dividends are taxed at 30% and capital gains are untaxed.If both stocks offer an after-tax return of 8%,what is the price of the two stocks?

• A) Price of X = $101.85; price of Y = $101.85
• B) Price of X = $99.07; price of Y = $101.85
• C) Price of X = $100; price of Y = $101.85
• D) Price of X = $99.07; price of Y = $100