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1. Dustin has analyzed five stocks and estimated the dividends they will pay nex

ID: 2648447 • Letter: 1

Question

1. Dustin has analyzed five stocks and estimated the dividends they will pay next year as well as their prices atthe end of the year. His projections are shown below. Current Projected Projected Dividend Stock Price Stock Price $36.50 $1.50 $43.00+ $1.00 $38.00- $34.50 $60.00 $65.50 $3.00 $81.00 $72.00 None $64.80 $3.15 $63.00+ Compute the dividend yield, capital gains yield, and total one-year return implied by Dustin's estimates for each stock. Stock A Dividend Yield: Capital Gains Yield: Tota Yield Stock B- Dividend Yield: Capital Gains Yield: Tota Yield Stock C- Dividend Yield: Capital Gains Yield: Total Yield: Stock D Dividend Yield: Capital Gains Yield: Total Yield Stock E Dividend Yield: Capital Gains Yield: Total Yield

Explanation / Answer

1. Dividend yield, Capital gain yield and total yield are calculated in below table.

Projected

All figures in $

Stock

Cur. Price

Dividend

Stock Price

Capital Gain

Total Gain

Dividend Yield %

Capital Gain yield %

Total Yield%

1

2

3

4

5

6

7

8

Formula

3-1

2+4

2/1*100

4/1*100

5/1*100

A

36.5

1.5

43

6.5

8

4.11

17.81

21.92

B

34.5

1

38

3.5

4.5

2.90

10.14

13.04

C

60

3

65.5

5.5

8.5

5.00

9.17

14.17

D

72

0

81

9

9

0.00

12.50

12.50

E

64.8

3.15

63

-1.8

1.35

4.86

-2.78

2.08

4.

Growth rate concept connection Example 8.2

Year

Opening stock Price

Growth rate = 10%

Year end price

A

B

A*B

0

20

1

20

1.1

22

2

22

1.1

24.2

3

24.2

1.1

26.62

4

26.62

1.1

29.282

5

29.282

1.1

32.2102

Answer :    Stock price will be $32.21 in five years

Projected

All figures in $

Stock

Cur. Price

Dividend

Stock Price

Capital Gain

Total Gain

Dividend Yield %

Capital Gain yield %

Total Yield%

1

2

3

4

5

6

7

8

Formula

3-1

2+4

2/1*100

4/1*100

5/1*100

A

36.5

1.5

43

6.5

8

4.11

17.81

21.92

B

34.5

1

38

3.5

4.5

2.90

10.14

13.04

C

60

3

65.5

5.5

8.5

5.00

9.17

14.17

D

72

0

81

9

9

0.00

12.50

12.50

E

64.8

3.15

63

-1.8

1.35

4.86

-2.78

2.08