Question
Consider four different stocks, all of which have a required return of 14 percent and a most recent dividend of $3.50 per share. Stocks W,
Consider four different stocks, all of which have a required return of 14 percent and a most recent dividend of $3.50 per share. Stocks W, X, and Y are expected to maintain constant growth rates in dividends for the foreseeable future of 10 percent, 0 percent, and 6 percent per year, respectively. Stock Z is a growth stock that will increase its dividend by 20 percent for the next two years and then maintain a constant 12 percent growth rate thereafter. What is the dividend yield for each of these four stocks? What is the expected capital gains yield for each of these four stocks?
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