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1.The dividend yield on the S&P 500 index is currently 1.5% per year. That is, if you invest $100 in the portfolio of stocks underlying
1.The dividend yield on the S&P 500 index is currently 1.5% per year. That is, if you invest $100 in the portfolio of stocks underlying the index, during the next year you will receive dividends that total to $1.50. For simplicity, you can think of the index as being a stock with current price of P0 and dividends of D1 = 0.015 P0. You are analyzing the link between the dividend payments of the S&P and the return on your investment. Based on historical information, you believe that your investment in the S&P 500 will yield annual returns of around 11.5%. How fast would dividends have to grow in perpetuity for the S&P 500 to give you 11.5% returns each year
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