Lucas Laboratories' last dividend was $1.50. Its current equilibrium stock price is $15.75, and its expected growth rate is a constant 5%. If the stockholders' required rate of return is 15%, what is the expected dividend yield and expected capital gains yield for the coming year

Expected dividend yield = 10.0%

Expected capital gains yield = 5.0%

Explanation:

D0 = $1.50 (Given)

E (D1) = D0 * (1 + g) = $1.50 * (1.05) = $1.575

E (P0) = $15.75 (Given)

E (P1) = $15.75 * (1.05) 1 = $16.5375

Expected dividend yield = E (D1) / E (P0)

= $1.575 / $15.75 = 0.100 = 10.0%

Expected capital gains yield = (E (P1) - E (P0)) / E (P0)

($16.5375 - $15.75) / $15.75 = 0.050 = 5.0%