Manish owns 250 preference shares of Amaze Ltd. which currently sells for ₹77 per share and pays annual dividend of ₹13 per share. (i) What is Manish's expected return? (ii) If Manish requires 13% return, should he sell

(i) Expected Return Expected Return = Dividend / Market Price = ₹13.00 / ₹77.00 = 16.88% (ii) Investment Decision Given 13% required rate of return, the stock worth is: Vp = Dividend / Required Rate = ₹13.00 / 0.13 = ₹100 Because the expected rate of return (16.88%) is greater than the required rate of return (13%) or because the current market price (₹77.00) is less than ₹100, the stock is undervalued and it is worth buying and accordingly Manish should buy more shares at current price.