Price of stock is 50.00 at the beginning of a year and 53.00 at the end of the year and it pays a dividend of 2.00 during the year calculate the stock's current yield,capital-gains yield,and the real return show work.
To calculate the stock's current yield, capital-gains yield, and the real return, follow these steps:
1. Calculate the current yield:
- Current Yield = Annual Dividend / Stock Price
- In this case, the Annual Dividend is $2.00.
- The Stock Price at the beginning of the year is $50.00.
- Thus, Current Yield = $2.00 / $50.00 = 0.04 or 4%
2. Calculate the capital-gains yield:
- Capital-Gains Yield = (Ending Stock Price - Beginning Stock Price) / Beginning Stock Price
- The Ending Stock Price is $53.00.
- The Beginning Stock Price is $50.00.
- Thus, Capital-Gains Yield = ($53.00 - $50.00) / $50.00 = $3.00 / $50.00 = 0.06 or 6%
3. Calculate the real return:
- Real Return = (1 + Nominal Return) / (1 + Inflation Rate) - 1
- The Nominal Return is the sum of the current yield and the capital-gains yield (4% + 6% = 10% or 0.10).
- The Inflation Rate is not provided, so we can't calculate the exact real return without that information. The real return is an adjusted return that accounts for inflation, so we need the inflation rate to calculate it accurately.
In summary, the stock's current yield is 4%, the capital-gains yield is 6%, but the real return cannot be calculated without knowing the inflation rate.