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    Expected and Required Returns

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    An investment of $20 in Stock A is expected to pay no dividends and have value of $24 in 1 year. An investment of $70 in Stock B is expected to generate a $2.50 dividend next year and price of its stock is expected to be $78.

    1) What are the expected returns
    2) If the required return is 10%, which
    stock(s) should be profitable investments?

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    Solution Preview

    1) Stock A
    Expected returns = (24 - 20)/20

    Solution Summary

    Expected and Required Returns are examined.