A stock is selling today for $40 per share. At the end of the year, it pays

Question:

A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44.

a. What is the total rate of return on the stock?

b. What are the dividend yield and percentage capital gain?

c. Now suppose the year-end stock price after the dividend is paid is $36. What are the dividend yield and percentage capital gain in this case?

d. Why is the dividend yield the same in parts (b) and (d)?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...