Question

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

Today’s Dividend	$3.51
Discount Rate	7.54%
Growth rate in dividends 0 to 1	8.57%
Growth rate in dividends 1 to 2	8.57%
Growth rate in dividends 2 to 3	5.33%
Growth rate in dividends 3 onward	3.12%

Answer 1

	Required rate=	7.54%
Year	Previous year dividend	Dividend growth rate	Dividend current year	Horizon value	Total Value	Discount factor	Discounted value
1	3.51	8.57%	3.810807		3.810807	1.0754	3.5436
2	3.810807	8.57%	4.13739316		4.13739316	1.15648516	3.57756
3	4.13739316	5.33%	4.357916215	101.672	106.0299162	1.243684141	85.2547
	Long term growth rate (given)=	3.12%			Value of Stock =	Sum of discounted value =	92.38
Where
Current dividend =Previous year dividend*(1+growth rate)^corresponding year
Total value = Dividend + horizon value (only for last year)
Horizon value = Dividend Current year 3 *(1+long term growth rate)/( Required rate-long term growth rate)
Discount factor=(1+ Required rate)^corresponding period
Discounted value=total value/discount factor

Yield = current dividend*(1+year 1 growth rate)/stock price

=3.51*(1+0.0857)/92.38*100

=

4.13%