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Homework answers / question archive / Illusion Inc
Illusion Inc. is expected to pay an annual dividend of $0.50 per share in the coming year, and to trade for $13.55 at the end of the year. If investments with the same risk as Illusion's stock have an expected return of 6.35%, what is Illusion's dividend yield?
Computation of the dividend yield:-
Current Price = (Expected dividend + Expected stock price) / (1 + Expected return)
= ($0.50 + $13.55) / (1 + 6.35%)
= $14.05 / (1+6.35%)
= $13.21
Dividend yield = Dividend / Current price
= $0.50 / $13.21
= 3.78%
