One year ago, you purchased an equity at a price of £32 a share.Today, you sold the equity and realized a total return of 25%.Your capital gain was £6 a share.What was your dividend yield?
A)1.25%
B)3.75%
C)6.25%
D)18.75%
E)21.25%

Question

Quizplus · Accepted Answer

Total return = (Income + Capital gain) / Initial investment
Here, Income refers to dividends.
Let's assume you bought 1 equity at a price of £32 a share. So your initial investment was £32.
Since you realized a total return of 25%, your total selling price per share = 32 + 0.25*32 = £40.
Your capital gain was £6 a share, so your selling price per share can also be calculated as = Initial price per share + capital gain per share = £32 + £6 = £38.
Therefore, Income (dividend) per share = Total selling price per share - Capital gain per share = £40 - £6 = £34.
Dividend yield = (Dividend per share / Initial investment per share) * 100
Dividend yield = (34/32) * 100 = 106.25%
Therefore, the dividend yield is 6.25%. (Option C)

One Year Ago, You Purchased an Equity at a Price