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What is the expected return from investment

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Your father has 500 shares of 'Premier Goods', which is expected to pay a $2.38 dividend per share next year. Expected dividend growth rate is 6% per year forever. He also has 600 shares of 'Sunshine Real Estates', which is predicted to have a dividend growth rate of 4% per year forever. 'Sunshine Real Estates' is now selling for $51.875 and is expected to pay a dividend of $3.35 per share next year.

a. If 'Premier Goods' is selling for $29.45 per share, what is the expected return from this investment?

b. Calculate your father's expected return on 'Sunshine Real Estates'.

c. Based on the results in part (a) & (b), can you say that one investment is superior than the other one ? If your father prefers to invest in stocks, what is your advice to him ? Explain your arguments.

d. Suppose your father also has some bonds, discuss why stocks are normally riskier than bonds. Is it good or bad?

Reference no: EM132412325

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