Suppose you bought 400 shares of stock at an initial price of $53 per share. The

Question

Suppose you bought 400 shares of stock at an initial price of $53 per share. The stock paid a dividend of $0.58 per share during the following year, and the share price at the end of the year was $54. a. What is the Capital gains yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Capital gains yield ____________ % b. What is the dividend yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Dividend yield __________________ % c What is the total rate of return on the investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Total rate of return ________________ %

Explanation / Answer

a. Capital Gain Yield = (P1 - P0) / P0

Where P1 = Stock price after 1st period and P0 = Initial stock price

Capital Gain Yield =

($54 - $53) / $53

= $1 / $53x 100

= 1.886

b. Dividend Yield = Dividend per share / Market value per share

Dividend per share = $0.58

Market value per share = $54

Dividend Yield = 0.58 / 54 x 100

= 1.074

c. Total rate of return = ((P1 - P0) + Dividend } / P0

= {($54 - $53) + 0.58} / $53

= $1.58/$53 x 100

= 2.98

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