Question

Hercules movers pays a constant annual dividend of $1.75 per share on its stock. last year at this time, the market rate of return on this stock was 14.8 percent. today, the market rate has fallen to 11.2 percent. what would your capital gains yield have been if you had purchased this stock one year ago and then sold the stock today?

Answer 1

Capital gain is computed in the formula below:

Capital gain= [(Current price-Original price)/ Original price ]x100
If stocks before
Original price =$1.75 x (1+14.8%)
= $2.009
Current price = $1.75 x(1+11.2%)
= $1.956

Capital gains yield = [($1.956-$2.009)/($2.009)]x100
= -0.264 x 100
= -26.4
Capital loss of 26.4% because the stock value decreased.