   Chapter 9, Problem 15CDQ

Chapter
Section
Textbook Problem

Why would the dividend yield differ significantly from the return on common stockholders’ equity?

To determine

Concept Introduction:

Dividend Yield Ratio:

Dividend Yield ratio is calculated as percentage by dividing the Dividend per share by Market price per share. The formula for the Dividend Yield ratio is as follow:

Dividend Yield Ratio =  Dividend per shareMarketprice per share

Return on Equity:

Return on Equity is the rate of return earned by the Stockholders on their investment in the company. It is calculated with the help of following formula:

Return on Equity = Net IncomeAverage Stockholders Equity

The Average stock holder's equity calculated with the help of following formula:

Average stock holders equity=( Beginning stock holders equity + Ending stock holders equity)2

To Indicate:

The Difference between the dividend yield and return on common stockholder's equity

Explanation

Dividend Yield ratio is calculated as percentage by dividing the Dividend per share by Market price per share. The formula for the Dividend Yield ratio is as follow:

Dividend Yield Ratio =  Dividend per shareMarketprice per share

Return on Equity is the rate of return earned by the Stockholders on their investment in the company

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