Kate owns a stock with a market price of $31 per share.This stock pays a constant annual dividend of $0.60 per share.If the price of the stock suddenly increases to $36 a share,you would expect the:
I.dividend yield to increase.
II.dividend yield to decrease.
III.capital gains yield to increase.
IV.capital gains yield to decrease.

Question

Quizplus · Accepted Answer

As the market price of the stock increases from $31 to $36, the dividend yield (annual dividend per share divided by market price per share) decreases since the annual dividend remains constant. The capital gains yield (change in market price per share divided by original market price per share) increases as the stock value increased from $31 to $36, resulting in a capital gain for the shareholder. Therefore, option B is the correct choice, indicating that only II (dividend yield to decrease) is expected upon such an increase in market price per share.

Kate Owns a Stock with a Market Price of $31