## Dividend Yield

The value of stock consists of dividend yield and capital gains. The dividend yield and capital gains make up the total rate of return for holding a stock which pays periodic cash dividends.

## Answer and Explanation:

Given the following information about Favored Stock,

{eq}D_1 = $3.12 {/eq} {eq}Dividend \ Yield = 0.08 {/eq} The price of the stock can be found using the following equation: {eq}Dividend \ Yield = D_1/P_0 {/eq} {eq}0.08 =$3.12/P_0 {/eq}

{eq}P_0 = $39 {/eq} Therefore, the price of the stock is$39.