CFA Level I · CFA Level I Exam · Sources of Equity Returns
An investor buys a share for 40.00 and sells it one year later for 44.00 after receiving a cash dividend of 2.00. Ignoring taxes and transaction costs, the share's dividend yield, based on the purchase price, is closest to:
The dividend yield is 5.0%, found by dividing the 2.00 dividend by the 40.00 purchase price. The 10.0% capital gain from the price rise is a separate component, and the two together give a 15.0% total return.
- A5.0%Correct
- B10.0%
- C15.0%
Explanation
Dividend yield = dividend / beginning price = 2.00 / 40.00 = 5.0%. The 10.0% figure is the price change (4.00/40.00), which is the capital gain component. The 15.0% figure is the total return (6.00/40.00), not the yield.
Did you get it right without looking?
One question tells you little. A timed set on Sources of Equity Returns shows your real accuracy, how long you take and where you lose marks.
More Sources of Equity Returns questions
- Compared with a historical-estimate approach, an equity risk premium estimate from a forward-looking (ex ante) approach is most likely to:
- Compared with a company that retains all earnings, a company that raises its dividend payout ratio, all else equal, will most likely deliver…
- An investor buys 100 shares at 20.00. At the end of year 1 each share pays a dividend of 1.00, and the investor reinvests it at 22.00 per sh…
- An investor holds a share for one year. The share price rises from 80.00 to 88.00, and the dividend of 2.00 per share is received at year-en…
- A stock's earnings per share rise from 4.00 to 4.40 over one year, and its P/E ratio is unchanged at 15. The stock pays no dividend. The one…
- Compared with a historical estimate of the equity risk premium, a forward-looking (supply-side) estimate is most likely to: