Saturn Corporation has just declared a 25% stock dividend. The stock was selling for $18 before the stock dividend. The stock will pay a quarterly cash dividend of 8 cents per share after the stock dividend. If the 8-cent dividend is maintained over the next year, what will be the post-stock dividend yield?
A) 2.13%
B) 2.22%
C) 0.56%
D) 1.44%

Question

Quizplus · Accepted Answer

First, we need to calculate the new number of shares after the stock dividend. If an investor had 100 shares before the stock dividend, they would receive an additional 25 shares (25% of 100) for a total of 125 shares.

Next, we need to calculate the new price per share. Since the stock dividend is 25%, we can multiply the previous price of $18 by (1 + 0.25) to get the new price of $22.50 per share.

Finally, we can calculate the post-stock dividend yield by multiplying the quarterly dividend of 8 cents per share by 4 to get the annual dividend of 32 cents per share. Then, we divide the annual dividend by the new price per share of $22.50 and multiply by 100 to get the yield as a percentage:

(32/22.50) x 100 = 142.22/100 = 2.22%

Therefore, the best choice is B.

Saturn Corporation Has Just Declared a 25% Stock Dividend