Math
posted by Antoinette .
Part 1.
A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44. What is the total rate of return on the stock?
What are the dividend yield and capital gains yield?
Part 2.
Suppose the yearend stock price after the dividend is paid is $36. What are the dividend yeild and capital gains yield in this case? Why is the dividend yield not affected?
Part 1:
(Total return= (dividend+appreciation)/(initial value) = (2 + 4)/40 = 15%
5% is dividen yield and the rest (10%) is capital gains yield.
Part 2.: Dividend yield = 2/40 = 5%, again, because the same dividend gets divided by the same initial stock value. Capital gains yield = 4/40
= 10%
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