Question

Given the information in the table, what is the dividend yield from t=0 to t=1?

Today’s Dividend	$3.23
Discount Rate	5.43%
Growth rate in dividends 0 to 1	8.10%
Growth rate in dividends 1 to 2	8.64%
Growth rate in dividends 2 to 3	6.97%
Growth rate in dividends 3 onward	4.41%

Answer 1

	Required Return	5.43%
	Today's dividend	$3.23
	Growth rate from 3rd year	4.41%
	Step 1 - PV of cash flows
Year	Growth Rate	Dividend	PV of Cash flow @ 5.43%
1	8.10%	$3.49	$3.31
2	8.64%	$3.79	$3.41
3	6.97%	$4.06	$3.46
			$10.19
	Step 2 - Calculation of Terminal Value
	`
	Dividend at the end of 4th year	=4.06*(1+.0441)
			=4.24
	Terminal Value at Time = 3	=	Dividend at the end of 4th year
			Required rate - Growth rate
		=	4.24
			0.0543-.0441
		=	$415.59
	PV of Terminal Value(discounted today)                     =	415.59/(1+0.0543)^3
	=	$354.63
	Current share price = 10.19+354.63
	Current share price = $364.82
	Dividend Yield = Current dividend / Share price * 100
	Dividend yield = 3.23/364.82 *100
	Current dividend yield = 0.89%