Question

In: Finance

Suppose a stock had an initial price of $82 per share, paid a dividend of $1.20...

Suppose a stock had an initial price of $82 per share, paid a dividend of $1.20 per share during the year, and had an ending share price of $74.

Compute the total percentage return. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Total return            %

What was the dividend yield and the capital gains yield? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Dividend yield %
Capital gains yield %

Solutions

Expert Solution

Solution :

A : The total percentage return on a given stock is calculated using the following formula :

Total percentage Return = [ ( Ending Price – Initial Price + Dividend Income ) / Initial Price ]

As per the Information given in the question we have

Ending Price = $ 74 per share

Initial Price = $ 82 per share

Dividend Income = $ 1.20 per share

Applying the above values in the formula we have

= ( 74 - 82 + 1.20 ) / 82

= - 6.8 / 82 = - 0.0829

= - 8.29 % ( when rounded off to two decimal places )

Thus total percentage return = - 8.29 %

B. The dividend yield on a stock is calculated using the following formula :

Dividend Yield = Annual Dividend / Ending price of stock

As per the Information given in the question we have

Ending Price = $ 74 per share

Dividend Income = $ 1.20 per share

Applying the above values in the formula we have

= $ 1.20 / 74 = 0.0162

= 1.62 % ( when rounded off to two decimal places )

Thus the Dividend Yield = 1.62 %

C. The Capital gains yield on a stock is calculated using the following formula

Capital gains Yield = ( Ending Price – Initial Price ) / Initial Price

As per the Information given in the question we have

Ending Price = $ 74 per share

Initial Price = $ 82 per share

Applying the above values in the formula we have

= ( 74 - 82 ) / 82

= - 8 / 82 = - 0.0976

= - 9.76 % ( when rounded off to two decimal places )

Thus Capital gains yield = - 9.76 %


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