A company has just paid a dividend of 3.73$. Its discount rate is 9.4%, and the...
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A company has just paid a dividend of 3.73$. Its discount rateis 9.4%, and the expected perpetual growth rate is 4.8%. What isthe stock's Capital Gain Yield?
Express your answer as a percentage but without the percentagesign, and rounded to 1 decimal. That is, if your answer is 0.035,which is 3.5%, then just type 3.5.
A company has just paid a dividend of 3.73$. Its discount rateis 9.4%, and the expected perpetual growth rate is 4.8%. What isthe stock's Capital Gain Yield?
Express your answer as a percentage but without the percentagesign, and rounded to 1 decimal. That is, if your answer is 0.035,which is 3.5%, then just type 3.5.
Answer & Explanation Solved by verified expert
Information provided:
Current dividend= $3.73
Discount rate= 9.4%
Growth rate= 4.8%
The question is solved using the dividend discount model.
Price of the stock today=D1/(r-g)
where:
D1=next dividend payment
r=interest rate
g=firm’s expected growth rate
= $3.73*(1 + 0.048)/ 0.094 – 0.048
= 3.9090/ 0.0460
= $84.9783 $84.98.
Capital gains yield is calculated using the below formula:
Capital Gains Yield= Current price-original price/Original price*100
= $84.98 - $100/ $100*100
= -0.1502*100
= -15.02.
In case of any query, kindly comment on the solution
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A company has just paid a dividend of 3.73$. Its discount rateis 9.4%, and the expected perpetual growth rate is 4.8%. What isthe stock's Capital Gain Yield?Express your answer as a percentage but without the percentagesign, and rounded to 1 decimal. That is, if your answer is 0.035,which is 3.5%, then just type 3.5.
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