PFIN 2nd Edition by Lawrence Gitman ,Michael Joehnk,Randall Billingsley

Exercise 2

An investor is thinking about buying some shares of Computer Engines, Inc., at $60 a share. She expects the price of the stock to rise to $100 a share over the next 3 years. During that time, she also expects to receive annual dividends of $3 per share. Given that the investor's expectations (about the future price of the stock and the dividends it pays) hold up, what rate of return can she expect to earn on this investment? ( Hint: Use either the approximate yield formula or a financial calculator to solve this problem.)