The next dividend payment by Mosby, Inc., will be $2.70 per share. The dividends

Question

The next dividend payment by Mosby, Inc., will be $2.70 per share. The dividends are anticipated to maintain a 6.75 percent growth rate, forever. Assume the stock currently sells for $49.00 per share. Requirement 1: What is the dividend yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Dividend yield % Requirement 2: What is the expected capital gains yield? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).) Capital gains yield %

Explanation / Answer

1.

dividend yield = 2.7/49*100% = 5.51%

2.

r=2.7/49+0.0675 = 12.26%

P1 = Div2/(r-g)

= 2.7*(1.0675)/(.1226-0.0675)

= 52.3075

capial gains yield = (P1-Po)/Po100% = 6.75%

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