Directions: You MUST show ALL of your work to receive credit on the problems. There will be significant point reductions if you do not show your work. All calculations should be completed to at least 2 decimal places.
1) A stock is selling today for $40 per share. At the end of the year, it pays a dividend of $2 per share and sells for $44.
A) What is the total rate of return on the stock?
B) What are the dividend yield and percentage capital gain?
C) Now suppose the year- end stock price after the dividend is paid is $ 36. What are the dividend yield and percentage capital gain in this case?
D) Why is the dividend yield the same in parts (b) and (d)?
2. The Costaguanan stock market provided a rate of return of 95%. The inflation rate in Costaguana during the year was 80%. In the United States, in con-trast, the stock market return was only 12%, but the inflation rate was only 2%. Which country’s stock market provided the higher real rate of return?