Given the following information, calculate the expected capital gains yield for Chicago Bears Inc.: beta = 0.6; Km = 15%; Krf = 8%; D1 = $2.00: Po =$25.00. Assume the stock is in equilibrium and the exhibits constant growth.

Question

Quizplus · Accepted Answer

The expected capital gains yield can be calculated using the formula for the required rate of return: Ke = Krf + beta * (Km - Krf). Here, Ke = 8% + 0.6 * (15% - 8%) = 12.2%. Since the stock is in equilibrium, the expected total return (Ke) is the sum of the dividend yield and the capital gains yield. The dividend yield is D1/Po = $2/$25 = 8%. Therefore, the capital gains yield is 12.2% - 8% = 4.2%.

Given the Following Information, Calculate the Expected Capital Gains Yield