Suppose that the price of a stock is $50 at the beginning of a year and $53 at the end of the year, and it pays a dividend of $2 during the year.
a.What is the stock's current yield? b.What is the stock's capital-gains yield? c.What is the stock's return?
What will be an ideal response?
| a. | Current yield = $2/$50 = .04 = 4%. |
| b. | Capital-gains yield = ($53 ? $50)/$50 = .06 = 6% |
| c. | Return = current yield + capital-gains yield = 4% + 6% = 10% |
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