Question

Consider four different stocks, all of which have a required return of 18.25 percent and a most recent dividend of $3.60 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and –5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20.25 percent for the next two years and then maintain a constant 12 percent growth rate, thereafter.

What is the dividend yield for each of these four stocks? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
  

What is the expected capital gains yield for each of these four stocks? (A negative answer should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
  

Answer 1

The price is given by P = D0*(1+g)/(r-g)