Question

During the year, Success Ltd shares have increased from $8 to $9 and shareholders received a final dividend of 50 cents per share, fully franked at the company tax rate of 30 per cent. Calculate first the conventional rate of return and second, the dividend yield (using the beginning of the year share price) on Success shares.

A. 18.75% and 6.25%
B. 15.18% and 5.5%
C. 18.75% and 5.5%
D. 15.18% and 6.25%

Answer 1

Dividend are fully franked. so tax payable by company on Dividends are received as tax credit by shareholder.So considered not taxable at personal rate.  
Conventional rate of return = (closing price - Opening price)+Dividend)/Opening price  
(9-8)+0.50)/8  
0.1875   or 18.75%
Dividend yield = Dividend /opening price  
0.50/8  
0.0625   or 6.25%
  
Answer is 18.75%, 6.25%