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Capital Gains versus Income Consider four different stocks, all of which have a required return of 20 percent and a most recent dividend of $4.50 per...
Capital Gains versus Income Consider four different stocks, all of whichhave a required return of 20 percent and a most recent dividend of $4.50 pershare. Stocks W, X, and Y are expected to maintain constant growth rates in dividendsfor the foreseeable future of 10 percent, 0 percent, and 5 percent peryear, respectively. Stock Z is a growth stock that will increase its dividend by20 percent for the next two years and then maintain a constant 12 percent growthrate, thereafter. What is the dividend yield for each of these four stocks? What isthe expected capital gains yield? Discuss the relationship among the various returnsthat you find for each of these stocks.
