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24 August, 13:46

If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock's expected dividend yield for the coming year?

a. 4.42%b. 4.66%c. 4.89%d. 5.13%e. 5.39%

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Answers (1)
  1. 24 August, 15:29
    0
    Option (b) is correct.

    Explanation:

    Given that,

    D0 = $2.25

    g (which is constant) = 3.5%

    P0 = $50

    Price = [D (1 + g) ] : Ke

    Where,

    Ke is the expected dividend yield for the coming year

    $50 = [$2.25 * (1 + 0.035) ] : Ke

    Ke = [$2.25 * (1 + 0.035) ] : $50

    Ke = $2.32875 : $50

    = 4.66%

    Therefore, the stock's expected dividend yield for the coming year will be 4.66%.
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