The next dividend payment by Mosby, Inc., will be $2.90 per share. The dividends

Question

The next dividend payment by Mosby, Inc., will be $2.90 per share. The dividends are anticipated to maintain a 7.75 percent growth rate, forever. Assume the stock currently sells for $49.40 per share.

What is the dividend yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What is the expected capital gains yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What is the dividend yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What is the expected capital gains yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Next dividend payment by Mosby, Inc., will be $2.90 per share

Dividend growth rate is 7.75%

Current selling price per share is $49.40

Calculate the Dividend Yield:

Dividend yield = Current dividend payment amount / Current selling price per share

                           = $2.90 / $49.40

                          = 0.0587 (or) 5.87

Therefore, Dividend yield is 5.87

Calculate the expected capital gains yield:

Capital gains yield = Dividend yield + Required rate of return

Required rate of return = [$2.90 / $49.40] + 7.75%

                                           = 0.13370 (or) 13.37%

Capital gains yield = [5.87 + 13.37%]

                                 = 19.24%

Therefore, expected capital gains yield = 19.24%

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