Winston Co.has a dividend-paying stock with a total return for the year of -6.5 percent.Which one of the following must be true?
A)The dividend must be constant.
B)The stock has a negative capital gains yield.
C)The dividend yield must be zero.
D)The required rate of return for this stock increased over the year.
E)The firm is experiencing supernormal growth.

Question

Quizplus · Accepted Answer

The total return on a stock is calculated as the sum of the capital gains yield and the dividend yield. As the total return is negative, at least one of the yields must be negative. Since the stock is a dividend-paying stock, it is likely that the dividend yield is positive, which means that the capital gains yield must be negative. Therefore, option B is the correct choice. Option A is incorrect because the dividend may or may not be constant. Option C is incorrect because a negative total return does not necessarily mean a zero dividend yield. Option D is incorrect as there is no information provided about the required rate of return changing. Option E is incorrect because there is no information about the firm's growth.