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

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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?

For a constant growth stock, price grows at the same rate as as dividends: g

P_{1} = P_{0}(1+g) = $40(1.06) = 42.4

Dividend yield = D_{1}/P_{0} = $2/$40 = 0.05 = 5% what is the stock's expected capital gains yield for the coming year Capital gains yield = (P_{1} - P_{0})/P_{0} = (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%

Stock's expected total reutrn for the coming year does not match up with my answer choices which are: a) 9.85, b)10.3%, c) 10.8%, d) 11.3% or e) 11.8%.