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.)

Question

Business

Alex Mckay

30 December, 10:47

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.)

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Answers (1)

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Alana Vang · Answer 1

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%