Novartis, the pharmaceutical firm, traded at a pr ice-to-book ratio of 2.1 in May 2011. It is

Question:

Novartis, the pharmaceutical firm, traded at a pr ice-to-book ratio of 2.1 in May 2011. It is forecasted to have a return on common equity (ROCE) of 19 percent for 2011. What is the expected return from buying a Novartis share if you forecast that residual earnings will grow at 4 percent per year in the future?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...