Question

Please include work in the BA 2 Plus Calculator if possible with this question.

Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $4.70 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, o percent, and -5 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 11 percent growth rate thereafter. What is the dividend yield for each of these four stocks? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place, e.g., 32.1.) Dividend yield Stock W Stock X Stock Y Stock Z What is the expected capital gains yield for each of these four stocks? (Leave no cells blank - be certain to enter "O" wherever required. Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place, e.g., 32.1.) egative amount should be Capital gains yield Stock W Stock x Stock Y Stock Z

Answer 1

Dividend yield=D1/P0=D0*(1+g)/(D0*(1+g)/(r-g))

Capital gains yield=required return-dividend yield

1.
=4.70*1.1/(4.70*1.1/(20%-10%))=10.000%

2.
=4.70*1/(4.70*1/(20%-0%))=20.000%

3.
=4.70*0.95/(4.70*0.95/(20%+5%))=25.000%

4.
=4.70*1.2/(4.7*(1.2/1.2)+4.7*(1.2/1.2)^2+4.7*(1.2/1.2)^2*1.11/(20%-11%))=8.372%

5.
=20%-10.000%=10.00%

6.
=20%-20.000%=0.00%

7.
=20%-25.000%=-5.00%

8.
=20%-8.372%=11.628%