Question

Problem 8-3 Stock Values [LO1]

The next dividend payment by Savitz, Inc., will be $2.04 per share. The dividends are anticipated to maintain a growth rate of 7 percent forever. The stock currently sells for $41 per share.

   

a.	What is the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.	What is the expected capital gains yield? (Enter your answer as a percent.)

Answer 1

a. Dividend yield =D₁ / P₀

Dividend yield = $2.04 / $41

Dividend yield = 0.0498 or 4.98%

b. Capital gains yield = Growth rate = 7%