Question

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%

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%