You are attempting to estimate the theoretical stock price as a potential investment. The overall market return is 14% and Government of Canada Treasury Bills offer a yield to maturity of 6%. The stock has an estimated beta of 0.75 and a current market price of $21.57. The company recently issued a $1.45 cash dividend to its shareholders. The expected dividend growth rate for the stock indefinitely into the future is 3%.

A. Calculate the stocks expected rate of return (nearest 1/100 of one percent without % symbol, e.g. 13.00)? Answer

B. Calculate the theoretical stock price using the constant dividend growth model (nearest 1/100 of one dollar without $ symbol, e.g. 13.00)? Answer

C. Would you buy the stock based on your analysis (pick one)?

Yes

No