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Imagine that a stock's dividends have grown at a fairly constant rate of 3.5

User Fazal
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Final answer:

The question refers to the historical shifts in importance between dividends and capital gains in the S&P 500 index returns, showing a notable decrease in dividend yields from the 1950s to 2020s and a rise in the relative importance of capital gains in certain decades.

Step-by-step explanation:

The student's question is about the growth of a stock's dividends at a constant rate of 3.5%. This question can be placed under the broader topic of investment returns in the S&P 500 index and touches on dividends and capital gains.

To answer this question properly, one would need to examine historical data on S&P 500 returns. Over the years, dividends, which are a portion of a company's earnings distributed to shareholders, have decreased from about 4% in the 1950s to 1980s to about 1% to 2% since the 1990s. On the other hand, capital gains, which result from the increase in stock value, became a more significant component of total returns, particularly in the 1980s and 1990s.

The importance of dividends versus capital gains has fluctuated, with dividends being a substantial contribution in earlier periods and capital gains taking precedence in later decades.

User MattSidor
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