Question

(Common stockholder expected return ) Bennett, Inc. common stock currently sells for $22.75 per share. The company's executives anticipate a constant growth rate of 9.1 percent and an end-of-year dividend of $1.50. a. What is your expected rate of return if you buy the stock for $22.75 ? b. If you require a return of 16 percent, should you purchase the stock?

answer in excel please

Answer 1

Calculate the expected rate of return as follows:

Therefore, the expected rate is 15.69%.

Formulas:

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b.

Required return for you is 16% but stock is giving 15.69%. It is good not to invest in that share because it is giving less return.