Question

Given the following information, what is the dividend yield between period 1 and period 2? Today’s Dividend = $2.32 Expected Growth rate in dividends = 4.03 Discount Rate (Required return) = 8.26 Calculate your answer to the nearest penny (e.g., 2.51)

Answer 1

Div Yield between Period 1 & 2 = D2 / P1

D2 = D0 ( 1 +g ) ^2

= $ 2.32 ( 1 + 0.0403 )^2

= $ 2.32 ( 1.0403^2)

= $ 2.32 * 1.0822

= $ 2.51

P1 =D2 / [ Ke - g ]

= $ 2.51 / [ 8.26% - 4.03% ]

= $ 2.51 / 4.23%

= $ 59.36

Div Yield between Period 1 & 2 = D2 / P1

= $ 2.51 / $ 59.36

= 0.0423 I.e 4.23%