Part A

Assume that Bon Temps has a beta coefficient of 1.3, that the risk-free rate (the yield on T-bonds) is 3%, and that the required rate of return on the market is 8%. What is Bon Temps's required rate of return?

Part B

Assume that Bon Temps is a constant growth company whose last dividend (D0, which was paid yesterday) was $2.10 and whose dividend is expected to grow indefinitely at a 4% rate. (1) What is the firm's expected dividend stream over the next 3 years? (2) What is its current stock price? (3) What is the stocks expected value one year from now? (4) What are the expected dividend yield, capital gains yield, and total return during the first year?

Part C

Now assume that the stock is currently selling at $40.00. What is its expected rate of return?

Part D

What would the stock price be if its dividends were expected to have zero growth?