Question

The next dividend payment by Mosby, Inc., will be $2.65 per share. The dividends are anticipated to maintain a 6.50 percent growth rate, forever. Assume the stock currently sells for $48.90 per share.

  

Requirement 1:

What is the dividend yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

  

Dividend yield

%

  

Requirement 2:

What is the expected capital gains yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

  

Capital gains yield

%

Answer 1

Dividend yield= Dividend/Share price

                            = $2.65/ $48.90= 0.0542*100= 5.42%.

The capital gains yield is the same as dividend growth rate which is 6.50%.

Therefore, the capital gains yield is 6.50%.