ToyTime’s common stock’s annual dividend for the next 3 years is expected to be $.50. Thereafter, the dividend is expected to grow 4% per year. Stocks of ToyTime’s risk are expected to earn 11% per annum.
a. Calculate the share price today and at the beginning of each of the next 4 years.
b. Calculate the dividend yield and capital gains yield for each year. Does the dividend yield plus the capital gains yield equal the expected return each year?