Question

An investor receives a 15% total return by purchasing a stock for $40 and selling it after one year with a 10% capital gain. How much was received in dividend income during the year

Answer 1

Answer:

Dividend per share = $2

Explanation:

The total yield or return on a stock consists of two components namely dividend yield and capital gains yield.

Total yield or return = Dividend yield + Capital gains yield

If the total return is 15% while the capital gains yield was 10%, the dividend yield on the stock will be,

0.15 = Dividend yield + 0.1

0.15 - 0.1 = Dividend Yield

Dividend Yield = 0.05 or 5%

Thus, dividend income per share will be,

0.05 = Dividend per share / 40

0.05 * 40 = Dividend per share

Dividend per share = $2