Chapter 10, Problem 10.1C

Section 10.1    Say you buy a share of stock for $50. Its price rises to $55, and it pays a $2 annual dividend. You do not sell the stock. What is your dividend yield for the year?

Summary Introduction

To determine: The current dividend yield for the year.

Dividend yield is the determination of dividend price per share. This indicates that how much the company pays each year in relation to its share price.

Answer to Problem 10.1C

The current dividend yield for the year is 4%.

Explanation of Solution

Given information:

Person X buys share of stock for $50. Its price rises to $55, and it pays a $2 annual dividend. Person X did not sell the stocks.

The formula to calculate the dividend yield:

$\text{Dividend yield}=\frac{\text{Dividend per share}}{\text{Price of annual dividend}}$

Compute the current dividend yield for the year:

$\begin{array}{c}\text{Dividend yield}=\frac{\text{Dividend per share}}{\text{Price of annual dividend}}\\ =\frac{\text{\$2}}{\text{\$50}}\\ =0.04\text{or 4\%}\end{array}$

Hence, the dividend yield for the year is 4%.