An investor bought a stock for $40 per share. It now trades for $90 per share and pays an annual dividend of $1 per share. What is the current dividend yield on this stock?

To determine the current dividend yield on the stock, you need to use the formula for dividend yield, which is calculated as follows:

Dividend Yield = (Annual Dividend per Share) / (Current Price per Share)

In this case, the annual dividend is $1 per share, and the current price per share is $90. Plugging in these values gives us:

Dividend Yield = $1 / $90

Calculating that, we find:

Dividend Yield = 0.0111, or when converted to a percentage, this becomes approximately 1.11%.

This indicates that an investor earns about 1.11% of the current stock price in dividends each year, which corresponds to the choice that suggests a dividend yield of 1.1%.

This result accurately reflects the relationship between dividend income and stock price, demonstrating that the yield decreases as the price of the stock increases, a key principle in understanding stocks and dividends in finance.