Suppose a stock had an initial price of $100.85 per share, paid a dividend of $2.20 per share...

Question:

Suppose a stock had an initial price of $100.85 per share, paid a dividend of $2.20 per share during the year, and had an ending share price of $115.75.

What was the dividend yield and the capital gains yield? (Do not round intermediate calculations. Enter answers as a percent rounded to 2 decimal places.)

Yield On Stock

There are two parts of the return on stock (1) Increase in the price of the stock over the period (2) dividends paid on the stock. Total return on the stock is the sum of dividends received and increase/decrease in the share price. Dividend yield is related to dividends issued while capital gain yield corresponds to change in the stock price during a given period.

Answer and Explanation:

(1) Dividend yield

{eq}Dividend~yield = \displaystyle\frac{dividend}{initial~ share~ price} {/eq}

{eq}Dividend~yield = \displaystyle\frac{2.20}{100.85} {/eq}

=2.18%

Thus, dividend yield is 2.18%

(2) Capital gain yield

{eq}Capital~gain~yield = \displaystyle\frac{Capital ~gain}{Initial~price} {/eq}

{eq}Capital~gain~yield = \displaystyle\frac{115.75-100.85}{100.85} {/eq}

{eq}Capital~gain~yield = \displaystyle\frac{14.9}{100.85} {/eq}

=14.77%


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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