Question

If D₀ = 3.05, g = 3.5%, and P₀ = 59, then what is the stock's expected dividend yield for the coming year

a) 4.23%
b) 3.71%
c) 2.84%
d) 1.92%

Answer 1

The stock's expected dividend yield for the coming year, given D0 = $3.05, g = 3.5%, and P0 = $59, is approximately 5.36%, which is not one of the options provided in the question.

Step-by-step explanation:

To calculate the stock's expected dividend yield for the coming year, we use the formula: Dividend Yield = D1 / P0, where D1 is the expected dividend next year and P0 is the current stock price. The expected dividend, D1, can be found by taking the current dividend, D0, and growing it by the growth rate, g. So first, we calculate D1 = D0 * (1 + g). Given D0 = $3.05 and a growth rate (g) of 3.5%, this gives us D1 = $3.05 * (1 + 0.035) = $3.16 approximately. The dividend yield is then calculated as $3.16 / $59 = 0.0536, or 5.36%.