Capitalization rate is 5.2 / 40.2 x 100 = 12.9 %
Capitalisation Rate = Annual Income / Total Value
So your annual income will be $5.20/share & your total value is probably the market price of the share, $40.20.
Therefore,
Capitalisation Rate = 5.20 / 40.20
= 0.1293 or 12.93%
What this rate indicates in this case is the potential return through dividends that the investor will get by purchasing Company Y stocks.
Company Y does not plow back any earnings and is expected to produce a level dividend stream of $5.2 a share. If the current stock price is $40.2, what is the market capitalization rate?
