Answer:
Expected dividend yield = 10.0%
Expected capital gains yield = 5.0%
Explanation:
D0 = $1.50 (Given)
E(D1) = D0 * (1 + g) = $1.50 * (1.05) = $1.575
E(P0) = $15.75 (Given)
E(P1) = $15.75 * (1.05)1 = $16.5375
Expected dividend yield = E(D1) / E(P0)
= $1.575 / $15.75 = 0.100 = 10.0%
Expected capital gains yield = (E(P1) - E(P0)) / E(P0)
($16.5375 - $15.75) / $15.75 = 0.050 = 5.0%
The Expected dividend yield is = 10.0%
The Expected capital gains yield is = 5.0%
According to a capital dividend is drawn from a company's capital it is based on, but not its earnings. Also, It is seen as a signal that a company lacks spare cash to pay dividends. When the Regular dividends are paid from earnings, and also represent a share of the profits. When A dividend is a periodical interest payment to an investor then to the investor is holding stocks.
Calculation is:
First D0 is = $1.50 (Given)
Then E(D1) is = D0 × (1 + g) = $1.50 × (1.05) = $1.575
After that E(P0) is = $15.75 (Given)
Then E(P1) is = $15.75 × (1.05)1 = $16.5375
Then the Expected dividend yield is = E(D1) / E(P0)
Therefore, = $1.575 / $15.75 = 0.100 = 10.0%
After that Expected capital gains yield is = (E(P1) - E(P0)) / E(P0)
Thus, ($16.5375 - $15.75) / $15.75 = 0.050 = 5.0%
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