Question

# (Common stock—rate of return) The stock of the CocaCola Corporation recently paid an annual dividend of...

(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

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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