The Koster Co. currently pays an annual dividend of $1.00 and plans on increasing that amount by 5% each year. The Keyser Co. currently pays an annual dividend of $1.00 and plans on increasing its dividend by 3% annually. Given this, it can be stated with certainty that the _____ of the Koster Co. stock is greater than the _____ of the Keyser Co. stock.

Question

Quizplus · Accepted Answer

The rate of capital gain for Koster Co. is greater than that of Keyser Co. because Koster plans to increase its dividend by a higher percentage annually (5% vs. 3%), which typically leads to a higher rate of capital gain assuming all other factors are equal.