Question

Kate owns a stock with a market price of $31 per share. This stock pays a constant annual dividend of $0.60 per share. If the price of the stock suddenly increases to $36 a share, you would expect the:

Answer 1

Answer:

Dividend yield is decreased by 0.27%

Explanation:

In this question, we have to find out the dividend yield which is shown below:

In the first case:

Market price = $31 per share

Annual dividend = $0.60 per share

So, the dividend yield = ($0.60 per share ÷ $31 per share) × 100

                                     = 1.94%

In second case:

Market price = $36 per share

Annual dividend = $0.60 per share

So, the dividend yield = ($0.60 per share ÷ $36 per share) × 100

                                     = 1.67%

By comparing these two cases, we get to know that the dividend yield is decreased by 0.27% (1.94% - 1.67%)