Question

A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $3 per share and sells for $58. a. What is the total rate of return on the stock? (Enter your answer as a whole percent.) b. What are the dividend yield and percentage capital gain? (Enter your answers as a whole percent.) c. Now suppose the year-end stock price after the dividend is paid is $42. What are the dividend yield and percentage capital gain in this case? (Negative amounts should be indicated by a minus sign. Enter your answers as a whole percent.)

Answer 1

Answer:

a) Total rate of return on the stock =22%

b) Dividend yield =6%; Capital gains yield = 16%

c) Dividend yield =6%; Capital gains yield = -16%

Explanation:

a) Total rate of return on the stock = $\frac{Dividend + Capital gains}{Price of stock today}$= $\frac{3+(58-50)}{50}$=22%

b) Dividend yield =$\frac{Dividend}{Price of stock today}$=$\frac{3}{50}$= 6%

Capital gains yield =$\frac{Capital gains}{Price of stock today}$=$\frac{58-50}{50}$= 16%

c) If year-end stock price after the dividend is $42;

Dividend yield =$\frac{Dividend}{Price of stock today}$=$\frac{3}{50}$= 6%

Capital gains yield =$\frac{Capital gains}{Price of stock today}$=$\frac{42-50}{50}$= -16%