Question

Given the information in the table, what is the dividend yield from t=0 to t=1? Today’s...

Given the information in the table, what is the dividend yield from t=0 to t=1?

Today’s Dividend

$4.00

Discount Rate

7.91%

Growth rate in dividends 0 to 1

7.54%

Growth rate in dividends 1 to 2

8.10%

Growth rate in dividends 2 to 3

7.59%

Growth rate in dividends 3 onward

3.44%
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Homework Answers

Answer #1

The dividend yield from t=0 to t=1 is = Dividend in year 1/Current price

Dividend in year 1 = Today's dividend * (1 + Growth rate in dividends 0 to 1)

Dividend in year 1 = 4.00 * (1 + 0.0754)

Dividend in year 1 = $4.3016

The current share price is equal to the present value of future dividends.

The current price = $104.095816

The dividend yield from t=0 to t=1 is = Dividend in year 1/Current price

The dividend yield = 4.3016/104.095816

The dividend yield = 0.04132346683

The dividend yield = 4.132346683%

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