Question

1. A stock is selling today for $50 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44.

a. What is the total rate of return on the stock?

b. What are the dividend yield and percentage capital gain?

c. Now suppose the year-end stock price after the dividend is paid is $36. What are the dividend yield and percentage capital gain in this case?

Answer 1

a]

total rate of return = (year end price - price today + dividend) / price today

total rate of return = ($44 - $50 + $2) / $50

total rate of return = -8.00%

b]

capital gain % = (year end price - price today) / price today

capital gain % = ($44 - $50) / $50

capital gain % = -12.00%

dividend yield = dividend / price today

dividend yield = $2 / $50

dividend yield = 4.00%

c]

capital gain % = (year end price - price today) / price today

capital gain % = ($36 - $50) / $50

capital gain % = -28.00%

dividend yield = dividend / price today

dividend yield = $2 / $50

dividend yield = 4.00%