Ordinary shares HG can issue 400 000 ordinary shares. HG has a beta of 1.08 and the entity is currently growing at a rate of 9.7% per annum. This growth is however expected to decrease by 6.2% after 4 years. At that point in time, the growth rate at the time will proceed into the foreseeable future. The average yield in the telecommunication market is 12.3%. South African 10Y government bonds, which are 10-year bonds, offer a 10.12% rate of return per annum. HG will pay a dividend of R7.70 per share at the beginning of the third year after the ordinary shares have been issued. The entity will proceed with these payments at the beginning of each year thereafter and only move the dividends payment to the end of each year when the sixth year after issuing the shares, dividend is to be paid. All dividends will however be kept in line with the entitys prevailing growth rate.

Required : calculate the rate of return of the ordinary shares of HG, using the capm model. (4 marks)