You will analyze three different stocks, all of which have a required return of

Question

You will analyze three different stocks, all of which have a required return of 10% and a most recent dividend of $4.50 per share. Stocks A, B, and C are expected to maintain constant growth rates in dividends for the foreseeable future of 6%, 0%, and -3% per year respectively.

A] What is the dividend yield for each of these three stocks?

B] What is the expected capital gains yield?

C] What is the price of each stock?

D] Discuss the relationship among the various returns that you find for each of these stocks.

Explanation / Answer

Patriculars Stock A Stock B Stock C Dividend (D0) 4.5 4.5 4.5 Ke 10% 10% 10% growth rate 6% 0% -3% D1=D0*(1+g) 4.77 4.5 4.37 P0= D1/(Ke-g) 119.25 45 33.58 Dividend Yield 4.0% 10.0% 13.0% P1=P0*(1+g) 126.41 45 32.57 Expected capital gains yield: (P1-P0)/P0 6.0% 0.0% -3.0% Total Yield from Stock : (D1+(P1-P0))/P0 10% 10% 10% Dividend Yield+Capital Gain Yield (4%+6%);(10%+0%);(13%-3%) 10% 10% 10%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.