Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. a company has just paid a dividend of 3.73$. its d

A company has just paid a dividend of 3.73$. Its discount rate is 9.4%, and the...

Free

80.2K

Verified Solution

Question

Finance

A company has just paid a dividend of 3.73$. Its discount rateis 9.4%, and the expected perpetual growth rate is 4.8%. What isthe stock's Capital Gain Yield?

Express your answer as a percentage but without the percentagesign, and rounded to 1 decimal. That is, if your answer is 0.035,which is 3.5%, then just type 3.5.

Answer & Explanation Solved by verified expert
4.3 Ratings (781 Votes)

Information provided:

Current dividend= $3.73

Discount rate= 9.4%

Growth rate= 4.8%

The question is solved using the dividend discount model.

Price of the stock today=D1/(r-g)

where:

D1=next dividend payment

r=interest rate

g=firm’s expected growth rate

= $3.73*(1 + 0.048)/ 0.094 – 0.048

= 3.9090/ 0.0460

= $84.9783     $84.98.

Capital gains yield is calculated using the below formula:

Capital Gains Yield= Current price-original price/Original price*100

                                     = $84.98 - $100/ $100*100

                                     = -0.1502*100

                                     = -15.02.

In case of any query, kindly comment on the solution
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

A company has just paid a dividend of 3.73$. Its discount rateis 9.4%, and the expected perpetual growth rate is 4.8%. What isthe stock's Capital Gain Yield?Express your answer as a percentage but without the percentagesign, and rounded to 1 decimal. That is, if your answer is 0.035,which is 3.5%, then just type 3.5.

Other questions asked by students

Q

You are offered an investment that will pay you $150 at the end of year one,...

Finance
Q

Explore the change of mathematics due to interactions with different cultures. What cultures made the biggest...

Advance Math
Q

A red blood cell has a disk diameter of 0.6 micrometers and an intracellular isotonic osmolarity...

Biology
Q

A specific genetic trait is selected against What will be the likely impact on an...

Biology
Q

Let f'''(x) = 8Find the particular solution to the above differential equation that satisfies the...

Calculus
Q

(a2) For each of the following cost flow assumptions, calculate (i)...

Accounting
Q

PA7-1 (Algo) Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System...

Accounting
Q

Foam Products, Incorporated, makes foam seat cushions for the automotive and aerospace industries. The companys...

Accounting
Q

On January 1, 2021 Splash City issues $500,000 of 9% bonds, due in 20 years...

Accounting
Q

El 1 de enero, Edison Corporation tena en circulacin 1.000.000 de acciones ordinarias con un...

Accounting
Q

Comparison of a financial statement between a sole proprietorship business and a business for the...

Accounting
Q

Seacrest Company has 30,000 shares of cumulative preferred 1% stock, $100 par and 50,000 shares...

Accounting