Qualified Financial Adviser (QFA) Investments Exam 2 Practice Test

The main idea here is that dividend yield shows the cash return you get from owning a share relative to what you pay for that share. It is calculated by dividing the annual dividend per share by the market price per share, then expressing the result as a percentage. This matches the intuition: if you own one share, you receive a fixed annual dividend, and the yield tells you how big that cash return is compared to the price you paid for the share.

For example, if a stock pays $2 in dividends per year per share and the current market price is $40 per share, the gross dividend yield would be 2 / 40 = 0.05, or 5%.

The other options mix up the relationship or use inappropriate measures: swapping the numerator and denominator would give the reciprocal yield, and using total assets instead of price per share doesn’t reflect the income return per unit of stock you’d actually invest in.