Question

You buy a stock for $34 per share and sell it for $36 after you collect a $1.00 per share dividend. Your pretax capital gain yield is ________________ and your pretax dividend yield is ________________. A) 2.94 percent; 2.78 percent B) 4.65 percent; 3.17 percent C) 5.88 percent; 2.94 percent D) 5.56 percent; 2.78 percent E) 8.82 percent; 0.00 percent

Answer 1

Answer: C - 5.88 percent; 2.94 percent

Explanation: Calculation of pre tax capital gain yield and pretax dividend yield is:

1. Pretax capital gain yield

=Share selling price - Purchase price/purchase price

=$36 - $34/$34

=$2/$34

=0.0588*100%

=5.88%

2. Pretax Dividend Yield

= Annual Dividend/Purchase price

= $1/$34

=0.0294*100%

=2.94%