Ch. 8 - 2

Melissa Cutt is thinking about buying some shares of EZLawn Equipment, at $ 35.72 per share. She expects the price of the stock to rise to $ 43.29 over the next 3 years. During that time she also expects to receive annual dividends of $ 4.61 per share.

a. What is the intrinsic worth of this stock, given a required rate of return of 9%?

b. What is its expected return?