Question

Walter’s dividend is expected to grow at a constant growth rate of 6.50% per year. What do you expect to happen to Walter’s expected dividend yield in the future? A. It will stay the same. B. It will increase. C. It will decrease.

Answer 1

Answer:

A. It will stay the same.

Explanation:

The formula to compute the dividend yield is shown below:

= (Annual dividend ÷ market price) × 100

Since in the question, it is given that the expected dividend is growing at the constant growth rate i.e 6.50%, so the expected dividend yield will remain the same in the future.  

As it shows a direct relationship between the growth rate and the dividend yield plus the market price is growing at a steady rate