Next year's annual dividend divided by the current stock price is called the:
a. yield to maturity.
b. total yield.
c. dividend yield.
d. capital gains yield.
e. earnings yield.
When investors purchase a stock, they expect to receive cash flows in one of two ways. One is to receive dividend payments from the stock. The other one is to capture appreciation of stock price by selling the stock at a price higher than the purchase price.
Answer and Explanation:
The answer is c).
Dividend yield is the expected rate of return an investor gets from dividend payment. Since the current stock price represents the cost of investing in the stock, thus the dividend yield is the expected dividend payment divided by the stock price.
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from Corporate Finance: Help & ReviewChapter 2 / Lesson 10