Is the following statement true or false? A company paid $2.10 in dividends. Its earning per...

Question:

Is the following statement true or false? A company paid $2.10 in dividends. Its earning per share is $5.40, and its stock price is $120 per share. The dividend yield equals 38.9%.

Dividend Yield

The dividend yield is the ratio of a company's dividend in relation to its share price and is often expressed as a percentage. It is an indication of the return to shareholders owning a share in the company.

Answer and Explanation:

The dividend yield is computed using the following formula:

{eq}Dividend~Yield=\frac{Dividend}{Share\ Price} {/eq}

To get the dividend yield of the company, we substitute the figures in the formula, as follows:

{eq}\begin{align*} Dividend~Yield&=\frac{2.10}{120}\\ &=.0175\\ \end{align*} {/eq}

Using the formula, we determine a dividend yield for the company of 1.75% and not 38.9%, therefore the following statement is FALSE


Learn more about this topic:

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What Is Dividend Yield? - Definition & Calculation

from Corporate Finance: Help & Review

Chapter 2 / Lesson 10
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