with all explanations please) 1)Winston Co. has a dividend-paying stock with a t
ID: 2621412 • Letter: W
Question
with all explanations please)
1)Winston Co. has a dividend-paying stock with a total return for the year of -6.5 percent. Which one of the following must be true?
A. The dividend must be constant.
B. The stock has a negative capital gains yield.
C. The dividend yield must be zero.
D. The required rate of return for this stock increased over the year.
E. The firm is experiencing supernormal growth.
2)Miller Brothers Hardware paid an annual dividend of $0.95 per share last month. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 13 percent rate of return, how much are you willing to pay to purchase one share of this stock today?
A. $9.23
B. $9.37
C. $9.67
D. $9.72
E. $9.88
Explanation / Answer
1] B. The stock has a negative capital gains yield.
ONLY IN THIS CASE a dividend-paying stock CAN HAVE A NEGATIVE RETURN.
2]PO = D1/(Re-g)
PO = 0.95*1.026/(0.13-0.026)
PO = 9.37
WE willing to pay to purchase one share of this stock today = $9.37
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