Question

(Common stock—rate of return) The stock of the CocaCola Corporation recently paid an annual dividend of $1.08 per share. Investors anticipate the company’s dividend will grow at a 10% rate for the foreseeable future. Calculate the stock’s dividend yield, capital gains yield, and total rate of return if one share of CocaCola stock is currently selling for: (using excel)

a. $45

b. $60

c. $75

d.$90

Answer #1

Answer :

**Stock dividend
yield** : Dividend yield equals the annual dividend
per share divided by the stock's price per share.

Dividend per share = $1.08

a) | $45 | =(1.08/45)*100 = 2.4% |

b) | $60 | =(1.08/60)*100 = 1.8% |

c) | $75 | =(1.08/75)*100 = 1.44% |

d) | $90 | =(1.08/90)*100 = 1.2% |

**Capital Gain
yield :**

**CGY = (Current Price – Original Price) / Original Price
x 100**

**Original price is not mentioned in the
question.**

**Lets assume the origibnal price was $50**

**Capital gain yield:**

Current selling price(as per question) | 45 | 60 | 75 | 90 |

Original price(assumed) | 50 | 50 | 50 | 50 |

price change | (5) | 10 | 25 | 40 |

Capital gain yield: |
(10%) | 20% | 50% | 80% |

Total rate of return:

Total rate of return is the sum of stock dividend yield and capital gain yield.

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