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.)
b. What is the dividend yield? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) 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.)

Answer 1

Answer:

Explanation:

Capital gains yield is the return investors get if their stocks appreciate in value. In this case , the price increases from $53 to $54

Capital gains yield(CGY) formula = (New price - Old price)/ Old price

CGY = (54-53)/53

= 0.01887 or 1.89%

Dividend yield measure the return from dividend payment on the stock.

It is calculated as follows;

Dividend yield = Dividend / Price

= 0.58/ 53

=0.01094 or 1.09%

Total rate of return = capital gains yield + dividend yield

total return = 0.01887 + 0.01094

= 0.0298 or 2.98%