Question

5. South Park Realty's stock had a 10% gain last year. According to the Fed, inflation was 3% last year. Assuming you had invested in South Park Realty's stock, what was your real rate of return? 6. Rocking Amp Bull energy DNA corp just paid a dividend of $3.10 a share last year. They have been increasing the dividends at a constant rate of 2.5% every year and plan on continuing to do so. If the market expects the total return on the stock to be 8% this year, what is the dividend yield?

Answer 1

5)	(1+ Real Rate) x (1 + Inflation Rate ) =				(1+ Nominal rate)
	(1+ Real Rate) x (1 + 3% ) =			(1+ 10%)
	1+Real Rate =		1.1/1.03
	1+Real Rate =		1.067961
	Real Rate =		1.067961	-1
	Real Rate =		0.067961	Or
			6.7961%
6)	Dividend Yield =		Dividend/ Price x 100
	Dividend =		3.1
	Price (P0) =		Dividend 1/(Re-g)
		=	3.1 x(1.025)/(0.08-0.025)
		=	57.77273
	Dividend Yield =		3.1/57.77 x 100
			5.3659%