Question

The next dividend payment by ZYX inc will be $1.99 per share. The dividend is anticipated to maintain a growth rate of 4.5%. What is the dividend yield? What is the expected capital gains yield?

share	$1.99
rate	4.50%
current stock	$31

Answer 1

Solution

TO do: Calculation of dividend yield and capital gain yield

Step 1 ) Calculation of dividend yield

Now, dividend yield= Annual dividend per share/Share price

Thus dividend yield= 1.99*1.045/31*100=6.708%

Note: We have to consider the effect of growth of dividend while calculating annual dividend to be paid over the next year.

Step 2) Calculation of expected capital gain yield:

Capital gain yield determines the return in form of capital appreciation due to increase in value of stock ovewr a period of time

AS per table in questio,

original stock prce=

$1.99

then current stock price =

$31

So capital gain yield

31-1.99 which is 29.01

So capital gain yield=29.01/31

(formula used: capital gain yield=(new price-original price)/New price

0.9358

Conclusion:

Dividend yield=6.708% and capital gain yield is 0.9358