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.