Problem:
A magazine gave the following estimates for a firm:
Beta= 1.15
Dividend per share at date zero= $3.10
Expected Dividend per share in three years from zero= $4.10
Retention rate in three years from zero= 60%
ROE in three years from zero= 15%
The stock was selling for $49. Estimate the expected returns from purchasing at $49 and receiving the dividend stream projected by the magazine.
Also, the risk-free rate was 11.5%. Using a market risk premium of 6%, what can I conclude about the purchase of the company's shares?