Use the information for the question(s)below.
Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%.
-Suppose you plan to hold Von Bora stock for only one year.Your dividend yield from holding Von Bora stock for the first year is closest to:
A)6.0%.
B)4.0%.
C)6.5%.
D)5.5%.

Question

Quizplus · Accepted Answer

The dividend yield is calculated as the dividend received at the end of the year divided by the stock price at the beginning of the year. Assuming the stock price at the beginning of the year is P, the dividend yield is $1.40 / P. To find P, we use the present value of expected cash flows: $1.40/(1.10) + ($1.50 + $25)/(1.10^2) = P. Solving for P gives approximately $23.33, so the dividend yield is $1.40 / $23.33 ≈ 6.0%.

Use the Information for the Question(s)below