If D₁ = $1.50,g (which is constant) = 6.5%,and P₀ = $56,what is the stock's expected capital gains yield for the coming year?

Question

Quizplus · Accepted Answer

The expected capital gains yield is calculated as (D1 - P0) / P0 * 100. In this case, (D1 - P0) / P0 * 100 = (1.50 - 56) / 56 * 100 = -6.50%. However, since the question asks for the expected capital gains yield for the coming year, we need to add the constant growth rate of 6.5% to the negative capital gains yield. Therefore, the expected capital gains yield for the coming year is -6.50% + 6.50% = 0%.

If D1 = $1

If D₁ = $1