quiz_solve03 - What is the stocks expected dividend yield?...

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FNCE 3010 (Durham). Fall 2007. Quiz 3. All rates and yields should be quoted on an annual basis unless otherwise noted. 1. Suppose that the current stock price is $7, dividends are paid quarterly, the next dividend is expected to be $.15, and the required rate of return for holding this stock is 12%. If the dividend is expected to grow at a constant rate forever, what is the growth rate?
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Unformatted text preview: What is the stocks expected dividend yield? At what rate is the price of the stock expected to increase? Solution: g = R - D1/P = 4 x (.03 - .15/7) = 3.43% dividend yield = 4 x .15/7 = 8.57% capital gain yield = g = 3.43%...
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