Spartan Sofas, Inc. is selling for $50.00 per share today. In one year, Spartan will be selling for $48.00 per share, and the dividend for the year will be $3.00. What is the cash return on Spartan stock?
A) $51.00
B) $1.00
C) $2.00
D) $3.00

Question

Quizplus · Accepted Answer

The cash return is equal to the dividend yield plus the change in stock price. The dividend yield is $3.00/$50.00 = 0.06 or 6%. The change in stock price is ($48.00 - $50.00)/$50.00 = -0.04 or -4%. Therefore, the cash return is 6% - 4% = 2% or $1.00.