What would be the total expected return on equities given a dividend yield of 3% and capital growth of 2%, with a risk‑free rate of 2%?

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Prepare for the Qualified Financial Adviser Exam 2 with flashcards and multiple choice questions, complete with hints and explanations. Get exam-ready and increase your confidence with our comprehensive study materials!

Multiple Choice

What would be the total expected return on equities given a dividend yield of 3% and capital growth of 2%, with a risk‑free rate of 2%?

Explanation:
Total return on equities combines the income you receive from dividends with the gain from rising stock price. Here, the dividend yield is 3% and the expected capital growth is 2%, so you add them: 3% + 2% = 5%. The risk-free rate of 2% isn’t part of this calculation; it serves as a baseline for comparing risk, not a component of the equity’s total return. So the total expected return is 5%.

Total return on equities combines the income you receive from dividends with the gain from rising stock price. Here, the dividend yield is 3% and the expected capital growth is 2%, so you add them: 3% + 2% = 5%. The risk-free rate of 2% isn’t part of this calculation; it serves as a baseline for comparing risk, not a component of the equity’s total return. So the total expected return is 5%.

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