Question

A stock has an HPR of 9%. The expected dividend yield is 3%.

a. True
b. False

The expected price appreciation is 12%.

a. True
b. False

Answer 1

b. False

Step-by-step explanation:

holding period return = [dividends received + (ending value - initial value)] / initial value

9% = [dividends received + (ending value - initial value)] / initial value

dividend yield = dividend / ending value

3% = dividend / ending value

price appreciation = (ending value / initial value) - 1

1.12 = ending value / initial value

ending value = 1.12 initial value ⇒ WE REPLACE IN THE HPR ANN DY FORMULAS

3% = dividend / 0.12 initial value

dividend = 0.36 initial value

9% = [dividends received + (1.12 initial - initial value)] / initial value

9% = dividends received + (0.12 initial value / initial value)

9% = dividends received + 12%

9% = 0.36 initial value + 12%

-3% = 0.36 initial value ⇒ THIS CANNOT BE TRUE, SO THE QUESTION MUST BE FALSE