Task: Please help with the following problem. Provide step by step calculations.
Suppose FPL will pay an annual dividend of $2.48 in 1994, and assume the market risk premium (RM - Rf) is 7.5% and the risk free interest rate is 7.3% (the current yield on 30-year T-bonds from Exhibit 8), and FPL Group Inc. stock is selling at $34 per share.
What is the expected capital gains yield of FPL stock? Hint: Recall that the total return (the expected rate of return) is equal to dividend yield plus capital gains (loss) yield. You may apply CAPM to find the expected return on FPL stock.
Case: Dividend Policy at FPL Group, Inc (A)