The fly-by-night corp. paid a dividend of $2.85 last year and the dividend is expected to grow at 5% per year for the foreseeable future. the company’s stock is currently selling for $38 per share. what are the expected dividend yield, capital gains yield, and total expected return for fly-by-night.

Dividend yield is 7.875%,

Capital gain yield is 5%

Total yield is 12.875%

Explanation:

Dividend last year=   2.85  

Growth rate = 5% or  0.05

∴ Dividend next year     

=2.85×(1+0.05)

=2.9925  

Stock price = $38  

Required Return = + Growth rate      

= (2.9925/38 ) + 0.05      

= 0.12875      

= 38×(1+0.05)

= 39.9  

Dividend yield =    

= 2.9925÷38

=  0.07875   or 7.875%

Capital gain yield =      

=

= 0.05 or 5%

Total Expected Return = Dividend yield + Capital gain yield      

= 0.07875 + 0.05

= 0.12875   or 12.875%

∴ Dividend yield is 7.875%,

Capital gain yield is 5%

Total yield is 12.875%