Respuesta :
Answer:
The correct solution is:
(a) 3.76%
(b) 17.00%
Explanation:
[tex]D1 =4\times (1+10 \ percent)[/tex]
   [tex]=4.40[/tex]
[tex]D2 =4\times (1+10 \ percent)^2[/tex]
   [tex]=4.84[/tex]
[tex]D3 =4\times (1+10 \ percent)^3[/tex]
   [tex]=5.324[/tex]
[tex]D4 =4\times (1+10 \ percent)^3\times 1.02[/tex]
   [tex]=5.43048[/tex]
Now,
The terminal value will be:
[tex]=\frac{5.43048}{17 \ percent-2 \ percent}[/tex]
[tex]=36.2032[/tex]
In year 0, the price will be:
[tex]=\frac{4.40}{1.17}+\frac{4.84}{1.17^2}+\frac{5.324}{1.17^3} + \frac{36.2032}{1.17^3}[/tex]
[tex]=33.2247[/tex]
In year 1, the price will be:
[tex]=\frac{4.84}{1.17^1} +\frac{5.324}{1.17^2} +\frac{36.2032}{1.17^2}[/tex]
[tex]= 34.4729[/tex]
(a)
The capital gain in stock price is:
[tex]=\frac{(34.4729-33.2247)}{33.2247}[/tex]
[tex]=3.76 \ percent[/tex]
(b)
[tex]Dividend \ yield=\frac{Dividend \ year \ 1}{price}[/tex]
            [tex]=\frac{4.40}{33.2247}[/tex]
            [tex]=13.24 \ percent[/tex]
So,
The expected rate of return is:
[tex]=Capital \ Gain+ Dividend \ Yield[/tex]
[tex]=3.76 \ percent+13.24 \ percent[/tex]
[tex]= 17.00 \ percent[/tex]
Note: percent = %
