Question

Suppose a student, Jessica, decides to use the constant-growth dividend discount model equation to find the return (R) on a stock even though the stock pays a constant annual dividend. Assuming her calculations are correct, which one of the following must equal zero if a firm pays a constant annual dividend?
A. Market value per share .
B. Book value per share.
C. Total return.
D. Capital gains yield.
E. Dividend yield.

Answer 1

Answer:

e

Explanation:

total return = capital gain + dividend yield

dividend yield = dividend / price of the stock

if dividend paid is constant, then dividend yield would remain constant

e.g. if dividend is 4 and price the stock was bought is 40

dividend yield = 4/40 = 0.1

capital gain is the change in price of the stock