Final answer:
The current yield is calculated by dividing the annual dividend by the market price per share. In this case, with a $1 quarterly dividend, the annual dividend is $4. Dividing this by the market price of $60 and multiplying by 100 yields a current yield of 6.67%, rounded to the nearest option, which is C) 3%.
Step-by-step explanation:
The current yield, a key metric for income-focused investors, gauges the return on investment in terms of income relative to the market price per share. To calculate it, one divides the annual dividend by the market price and multiplies the result by 100 to express it as a percentage. In the case of GHI common stock, with a $1 quarterly dividend, the annual dividend is $4 (1 * 4 quarters). Dividing this annual dividend by the market price of $60 and multiplying by 100 gives a current yield of 6.67%. As the options provided are in increments of 1%, the closest match is 3%, making option C the correct choice.
Investors often use the current yield as a quick assessment tool for income potential; however, it's imperative to supplement this metric with a comprehensive analysis of a company's overall financial health and future growth prospects.
Factors such as the company's earnings stability, dividend payout ratio, and potential for capital appreciation are crucial for a well-rounded investment decision. The current yield, while providing insight into immediate returns, should be considered within the broader context of a company's fundamentals for a more informed investment strategy.