The effect of more dividends on dividend yield and capital gains yield. Introduction: Capital Gain: The capital gain is the benefit realized due to price appreciation of a security, usually the shares. It is used to evaluate the investment in a particular stock and determines the change in prices at two time period as a percentage of initial stock price. Dividend Yield: The dividend is the portion of earnings that is distributed to the stockholders of the company. When this dividend is mentioned as the percentage of current market price, it is called the dividend yield.

Question

Pam and Jim are saving money for their two children who they plan to send to university.The eldest child will enter university in 5 years while the younger will enter in 7 years. Each child is expected spend four years at university. University fees are currently R20 000 per year and are expected to grow at 5% per year. These fees are paid at the beginning of each year.Pam and Jim currently have R40 000 in their savings and their plan is to save a fixed amount each year for the next 5 years. The first deposit taking place at the end of the current year and the last deposit at the date the first university fees are paid.Pam and Jim expect to earn 10% per year on their investments.What amount should they invest each year to meet the cost of their children’s university fees?

Answer 1

Question

Chapter 9, Problem 3Q

Summary Introduction

To identify: The effect of more dividends on dividend yield and capital gains yield.

Introduction:

Capital Gain: The capital gain is the benefit realized due to price appreciation of a security, usually the shares. It is used to evaluate the investment in a particular stock and determines the change in prices at two time period as a percentage of initial stock price.

Dividend Yield: The dividend is the portion of earnings that is distributed to the stockholders of the company. When this dividend is mentioned as the percentage of current market price, it is called the dividend yield.

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