Use the following information to answer question 5 and 6. Von Bora Corporation i

Question

Use the following information to answer question 5 and 6. Von Bora Corporation is expected pay a dividend of $1.40 per share at the end of this year and a $1.50 per share at the end of the second year. You expect Von Bora's stock price to be $25.00 at the end of two years. Von Bora's equity cost of capital is 10%. 5) Suppose you plan to hold Von Bora stock for only one year. Your capital gain from holding Von Bora stock for the first year is closest to: A) $0.95 B) S1.25 C) $1.40 D) $1.85 ear. Your dividend yield from Von Bora stock for the first year is closest to: A)4.0% B) 5.5% C) 6.0% D) 6.5%

Explanation / Answer

current stock price = 1.4/1.1 + 1.5/1.1^2 + 25/1.1^2 = 23.17

5)

capital gains =dividends earned = 1.4

choose c)

6)

dividend yield = 1.4/23.17

= 6%

choose c)

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