National Telephone and Telegraph (NTT) Company common stock currentyl sells for $60 per share. NTT is expected to pay $4 dividend during the coming year, and the price of the stock is expected to increase to $65 a year from now. Determine the expected (ex-ante) percentage holding period return on NTT common stock.
take a shot, what do you think.
To determine the expected (ex-ante) percentage holding period return on NTT common stock, we need to consider the dividend and the change in stock price.
The dividend per share is $4, and the stock price is expected to increase from $60 to $65.
The expected dividend yield can be calculated by dividing the dividend by the current stock price:
Dividend Yield = Dividend / Current Stock Price
Dividend Yield = $4 / $60 = 0.0667
The expected capital gains yield can be calculated by dividing the change in stock price by the current stock price:
Capital Gains Yield = (Change in Stock Price) / Current Stock Price
Capital Gains Yield = ($65 - $60) / $60 = 0.0833
The expected holding period return is the sum of the dividend yield and the capital gains yield:
Expected Holding Period Return = Dividend Yield + Capital Gains Yield
Expected Holding Period Return = 0.0667 + 0.0833 = 0.15
Therefore, the expected (ex-ante) percentage holding period return on NTT common stock is 15%.