How is the dividend yield of a stock calculated?

The dividend yield of a stock is calculated by dividing the annual dividend paid by the market price of the stock, and then multiplying by 100 to convert it into a percentage. This formula provides investors with a straightforward way to assess the income generated by an investment in relation to its market price.

Using this method, if a stock pays an annual dividend of $2 and has a market price of $50, the calculation would be:

[

\text{Dividend Yield} = \left( \frac{2}{50} \right) \times 100% = 4%

]

This figure allows investors to compare the income generated by different stocks or to evaluate the potential return of a stock relative to its price. The other options do not accurately represent the calculation of dividend yield, as they involve either incorrect mathematical relationships or irrelevant operations relating to the dividend and market price.