You will analyze three different stocks, all of which have a required return of

Question

You will analyze three different stocks, all of which have a required return of 20% and a most recent dividend of $3.50 per share. Stocks A, B, and C are expected to maintain constant growth rates in dividends for the foreseeable future of 12%, 0%, and -6% per year respectively.

A] What is the dividend yield for each of these three stocks?

B] What is the expected capital gains yield?

C] What is the price of each stock?

D] Discuss the relationship among the various returns that you find for each of these stocks.

Explanation / Answer

c. Stocks Dividend Paid(D0) Required Rate (R ) Growth Rate(g) Price of the Stock= P0 = D0(1 + g) / (R

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