Question

Suppose a stock had an initial price of $80 per share, paid a dividend of $.60 per share during the year, and had an ending share price of $72.

Compute the percentage total return, dividend yield, and capital gains yield.

Answer 1

The formula to compute the dividend yield is as follows: Dividend yield= D-1 P. Here, The upcoming or next dividend is D:11 The initial share price is P.. The formula to compute the capital gain yield is as follows: (P:+1 – P.) Capital gain yield = P. Here, The upcoming or next share price is P+1. The initial share price is P,. The initial share price is $80. During the year, the dividend of $0.60 is paid and the ending share price is $72. To compute the percentage total return, dividend yield and capital gain yield follow the below mentioned steps: Step 1: Compute the dividend yield as follows:

D-1 Dividend yield = P $0.60 $80 = 0.007500 Hence, the dividend yield is 0.75% Step 2: Compute the capital gain yield as follows: (P-1-P) Capital gain yield = Р. $72-$80 $80 -$8 $80 = -10.00% Hence, the capital gain yield is -10% Step 3: Compute the percentage total return as follows: Percentage total return = Dividend yield+Capital gain yield = 0.75%+(-10%) = -9.25% Hence, the percentage total return is -9.25%