Airnova Inc. has two types of bonds, Bond D and Bond F. Both have 8 percent coupons, make semiannual payments, and are priced at par value. Bond D has 2 years to maturity. Bond F has 15 years to maturity.

Airnova Inc. is considering four different types of stocks. They each have a required return of 20 percent and a dividend of $3.75 for share. Stocks, A, B, and C are expected to maintain constant growth rates in dividends for the near future of 10 percent, 0 percent, and -5 percent, respectively. Stock D is a growth stock and will increase its dividend by 30 percent for the next four years and then maintain a constant 12 percent growth rate after that.

What is the expected capital gains yield?

My answers:

STOCK A 10.01% (CORRECT)

STOCK B 0% (CORRECT)

STOCK C -4.99579% (CORRECT)

STOCK D 4.862% (WRONG)

Professors comment:

Regarding question 5, could you please, recalculate the capital gain yield for stock D as:

In all cases, the required return is 20%.

Capital gains yield = Required return dividend yield = 0,20-Div Yield (STOCK D)= ;

Please help answer what he is trying to ask.