1. The stock of Amigo Corp. is currently selling for $10 per share. Earnings per share in the coming year are expected to be $2. The company has a policy of paying out 50% of its earnings each year in dividends. The rest is retained and invested in projects that earn a 20% rate of return per year. This situation is expected to continue indefinitely.
2. 1. Assuming the current market price off the stock reflects its intrinsic value as computed using the constant-growth DDM, what rate of return do Amigos investors require?