National Telephone and Telegraph Company common stock currently sells for $60 per share. NTT is expected to pay a $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.
HPR = ((Present Value, or face Value, End-Of-Period Value) + (Any Intermediate Gains eg. Dividends) - (Initial Value)) /(Initial Value)
65 + 4 - 60 = 9
9/60 = 0.15 = 15%
Suppose that a year later, NTT's common stock is selling gor $75 per share. During the 1 year period, NTT paid a $4 common stock dividend. Determine the relaized (ex-post) percentage holding period return on NTT common stock.
b. Suppose that 1 year later, NTT’s common stock is selling for
$75 per share. During the 1-year period, NTT paid a $4 common
stock dividend. Determine the realized (ex-post) percentage
holding period return on NTT common stock.
To determine the expected percentage holding period return on NTT common stock, you need to take into account both the dividend yield and the capital gain yield.
The dividend yield is calculated by dividing the dividend per share by the stock price. In this case, the dividend per share is $4 and the stock price is $60. So, the dividend yield is 4/60 = 0.0667, or 6.67%.
The capital gain yield is calculated by subtracting the initial price from the final price, dividing the result by the initial price, and then multiplying by 100. In this case, the initial price is $60 and the final price is $65. So, the capital gain yield is (65 - 60)/60 * 100 = 8.33%.
To determine the overall expected percentage holding period return, you add the dividend yield and the capital gain yield together. In this case, the expected percentage holding period return is 6.67% + 8.33% = 15%.
Therefore, the expected (ex-ante) percentage holding period return on NTT common stock is 15%.