Shares of common stock of the Samson Inc. offer an expected total return of 12%. The dividend is increasing at a constant 8% per year. The dividend yield must be:
A) -4%.
B) 4%.
C) 8%.
D) 12%.
E) 20%.

Question

Quizplus · Accepted Answer

The expected total return on a stock is the sum of the dividend yield and the growth rate of the dividend. Given an expected total return of 12% and a dividend growth rate of 8%, the dividend yield must be 4% to make up the total expected return (12% = 4% dividend yield + 8% growth rate).

Shares of Common Stock of the Samson Inc