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Paneer Asphalt Materials pays a constant annual dividend of $1.26 per share on its stock. Last year at this time, the market rate of return on this stock was 14.9 percent. Today, the market rate has fallen to 12.5 percent. What would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today

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anthougo

Answer:

Paneer Asphalt Materials

The capital gains yield would have been = 19%.

Explanation:

a) Data and Calculations:

Constant annual dividend = $1.26 per share

Market rate of return last year = 14.9%

Market price of share last year = Dividend per share/Market Rate of Return

= $1.26/14.9%

= $8.46 per share

Market rate of return this year = 12.5%

Market price of share this year = $1.26/12.5%

= $10.08 per share

Capital gains per share = $1.62 ($10.08 - $8.46)

Capital gains yield = Rise in the price per share/Purchase price per share

= 19% ($1.62/$8.46 * 100)

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