Evaluation of stock based on firm's dividend yield and capital gain yield.
If you bought a share of common stock, you would probably expect to receive dividends plus an eventual capital gain. Would the distribution between the dividend yield and the capital gain yield be influenced by the firm's decision to pay more dividends rather than to retain and reinvest more of its earnings? Explain.
Evaluation of two different options for stock purchase.
Two investors are evaluating GE's stock for possible purchase. They agree on the expected value of D, and also on the expected future dividend growth rate. Further, they agree on the riskiness of the stock. However, one investor normally holds stocks for 2 years, while the other holds tocks for 10 years. On the basis of the type of analysis done in this chapter, should they both be willing to pay the same price for GE's stock? Explain.