2. Suppose FPL will pay an annual dividend of $2.48 in 1994, and assume the market risk premium (RM – Rf) is 7.5% and the risk free interest rate is 7.3% (the current yield on 30-year T-bonds from Exhibit 8), and FPL Group Inc. stock is selling at $34 per share, what is the expected capital gains yield of FPL stock?
Expected capital gains yield = expected rate of return - dividend yield