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2 March, 21:52

The next dividend payment by Savitz, Inc., will be $2.34 per share. The dividends are anticipated to maintain a growth rate of 4.5 percent forever. If the stock currently sells for $37 per share.

a. What is the required return?

b. What is the dividend yield?

c. What is the expected capital gains yield?

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Answers (1)
  1. 3 March, 00:04
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    a. 10.8%

    b. 6.32%

    c. 4.5%

    Explanation:

    a. Required return = (Expected dividend payment/current stock price) + dividend growth rate

    Required return = (2.34/37) + 0.045

    Required return = 0.108 ⇒ 10.8%

    b. Dividend yield = dividend per share / price per share

    Dividend yield = 2.34/37 = 0.0632 ⇒ 6.32%

    c. The capital gains yield refers to the rise in the price of the stock. In this case, the statement indicates that the dividends are anticipated to maintain a growth rate of 4.5 percent forever and according to the definition of capital gains yield that would be the answer for the expected capital gains yield.
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