Question

1

A stock is expected to maintain a constant dividend growth rate of 4.9 percent indefinitely. If the stock has a dividend yield of 6.2 percent, what is the required return on the stock? 

9.2% 10.4% 9.9% 10.4% 11.1%

2

A stock just paid a dividend of $5.13 and is expected to maintain a constant dividend growth rate of 4.1 percent indefinitely. If the current stock price is $71, what is the dividend yield the stock has? 10.85% 11.62% 9.91% 10.76% o 7.52%

Answer 1

1)

Required return = growth rate + dividend yield

Required return = 4.9% + 6.2%

Required return = 11.1%

2)

Year 1 dividend = 5.13 (1 + 4.1%)

Year 1 dividend = 5.34033

Dividend yield = (D1 / price) * 100

Dividend yield = (5.34033 / 71) * 100

Dividend yield = 7.52%