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Stacy purchased a stock last year and sold it today for $4 a share more than her purchase price. She received a total of $1.15 per share in dividends. Which one of the following statements is correct in relation to this investment?
A. The dividend yield is expressed as a percentatge of the par value
B. the capital gain would have been less had Stacy not received dividends
C. The total dollar return per share is $2.85
D. The capital lgains yield is positive
E. The dividend yield is greater than the capital gains yield

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Answer:

D) The capital gains yield is positive

Explanation:

Since Stacy earned $4, her capital gains yield must be positive. We cannot know the exact percentage, but it is positive.

The following statements are wrong because:

  • A. The dividend yield is expressed as a percentage of the par value  FALSE, IT IS EXPRESSED IN DOLLARS ($4)
  • B. the capital gain would have been less had Stacy not received dividends  FALSE, CAPITAL GAINS AND INCOME FROM DIVIDENDS ARE SEPARATE
  • C. The total dollar return per share is $2.85  FALSE, HER TOTAL GAIN WAS $4 + $1.15 = $5.15
  • E. The dividend yield is greater than the capital gains yield IT IS NOT POSSIBLE TO DETERMINE WITHOUT THE ORIGINAL STOCK PRICE