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Von Bora Corporation is expected to pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year.You expect Von Bora's stock price to be $25.00 at the end of two years.Von Bora's equity cost of capital is 10%.
-Suppose you plan on purchasing Von Bora stock in one year,right after the $1.40 dividend is paid.You then plan on selling your stock at the end of year two,right after the $1.50 dividend is paid.The dividend yield that you will receive on your investment is closest to:
A)5.75%.
B)6.50%.
C)6.25%.
D)4.00%.

Question

Quizplus · Accepted Answer

The dividend yield is calculated as the dividend received divided by the price paid for the stock. In this case, the dividend yield is $1.50 / $24.09 (the price of the stock one year from now, discounted at 10% from $25) which is approximately 6.25%.

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