The shares of Townships Ski Resorts Inc.just paid a dividend of $0.78.What are the expected capital gains yield if the share is selling for $28.25 today and the required rate of return is 15.0%?

Question

Quizplus · Accepted Answer

The formula for capital gains yield is: 
Capital Gains Yield = (Ending Price - Beginning Price) / Beginning Price

We are given the beginning price (current stock price) as $28.25, and the dividend paid as $0.78. To find the ending price, we can use the formula:

Ending Price = Beginning Price + Capital Gains Yield x Beginning Price + Dividend 
$28.25 = $28.25 + CGY x $28.25 + $0.78

Solving for the CGY, we get:

CGY = (Ending Price - Beginning Price - Dividend) / Beginning Price 
CGY = ($28.25 + CGY x $28.25 + $0.78 - $28.25) / $28.25 
CGY = 0.011364

Multiplying by 100, we get the answer as 11.91%. Thus, the best choice is C.

The Shares of Townships Ski Resorts Inc