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# If D1 \$2, g (which is a constant) 6% and Po \$40, what is ...

If D1=\$2, g (which is a constant) = 6% and Po=\$40, what is the stock's expected capital gains yield for the coming year? If Do=\$2.00, what is the stock's expected total return for the coming year?

D0=\$2

G=6%

P0=\$40

D1=\$2.12

Dividend yield=5.3%
Customer: replied 9 years ago.
Reply to Dolly's Post: This answer is not one of my options.
For a constant growth stock, price grows at the same rate as as dividends: g

P1 = P0(1+g) = \$40(1.06) = 42.4

Dividend yield = D1/P0 = \$2/\$40 = 0.05 = 5%

what is the stock's expected capital gains yield for the coming year
Capital gains yield = (P1 - P0)/P0 = (42.4 - 40)/40 = 0.06 = 6%

what is the stock's expected total return for the coming year
Total return = Dividend yield + Capital gains yield = 5% + 6% = 11%

Sk1llz, Mastermind
Category: Homework
Satisfied Customers: 2328
Experience: Mathematics, Statistics and Physics