If D0 = $2.25, g (which is constant) = 3.5%, and P0 = $50, what is the stock's expected dividend yield for the coming year?

Question

Quizplus · Accepted Answer

The expected dividend yield is the ratio of the expected dividend next year to the current stock price. We can calculate the expected dividend next year using the constant growth rate formula:

D1 = D0*(1+g) = $2.25*(1+0.035) = $2.33

So the expected dividend yield is:

Expected Dividend Yield = D1/P0 = $2.33/$50 = 0.0466 = 4.66%

Therefore, the answer is B.