Question

You purchased 250 shares of a particular stock at the beginning of the year at a price of $87.25. The stock paid a dividend of $1.15 per share, and the stock price at the end of the year was $94.86. (4 points)

a) What was the dividend yield?

b) What was the capital gains yield?

Answer 1

Solution :

a)

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 = $ 94.86 per share

Dividend Income = $ 1.15 per share

Applying the above values in the formula we have dividend yield as

= $ 1.15 / 94.86

= 0.012123

= 1.2123 %

= 1.21 % ( when rounded off to two decimal places )

Thus the Dividend Yield = 1.21 %

b)

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 = $ 94.86 per share

Initial Price = $ 87.25 per share

Applying the above values in the formula we have capital gains yield as

= ( 94.86 – 87.25 ) / 87.25

= 7.61 / 87.25

= 0.087221

= 8.7221 %

= 8.72 % ( when rounded off to two decimal places )

Thus Capital gains yield = 8.72 %