ST-5.

- dividend in year 1 wth

a. expected rate of return (kcs ) = + gro rate market price k = $2.50 + 0.105 = .2137 cs $23.00 kcs = 21.37%

b. The value of the stock for you would be $38.46. Thus, the expected rate of return exceeds your required rate of return, which means that the value of the security to you is greater than the current market price. Thus, you should buy the stock.

v = $2.50 = $38.46 cs .17 - .105