Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year. Calculate the stock’s current yield, capital-gains yield, and the return. Show your work for three separate calculations.
Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year. Calculate the stock’s current yield, capital-gains yield, and the return. Show your work for three separate calculations.
Use the capital-asset pricing model to predict the returns next year of the following stocks, if you expect the return to holding stocks to be 12 percent on average, and the interest rate on three-month T-bills will be two percent. Calculate a stock with a beta of -0.3, 0.7, and 1.6. Show your work for three separate calculations.
Current Yield - $2/$50 = 4%
Capital Gains - ($53-$50)/50 = 6%
Return: - 4% + 6% = 10%
Hope this helps.
To calculate the stock's current yield, capital-gains yield, and return, we need to use the following formulas:
1. Current Yield = Dividend / Price
2. Capital-Gains Yield = (Ending Price - Beginning Price) / Beginning Price
3. Return = Current Yield + Capital-Gains Yield
Given:
Beginning Price (P0) = $50
Ending Price (P1) = $53
Dividend (D) = $2
Let's calculate each value step by step:
1. Current Yield:
Current Yield = Dividend / Price
Current Yield = $2 / $50
Current Yield ≈ 0.04 or 4%
2. Capital-Gains Yield:
Capital-Gains Yield = (Ending Price - Beginning Price) / Beginning Price
Capital-Gains Yield = ($53 - $50) / $50
Capital-Gains Yield ≈ 0.06 or 6%
3. Return:
Return = Current Yield + Capital-Gains Yield
Return = 0.04 + 0.06
Return = 0.1 or 10%
Therefore, the stock's current yield is approximately 4%, the capital-gains yield is approximately 6%, and the overall return is 10%.