2. Based on the following stock price and shares outstanding information, compute the beginning and ending values for a price-weighted index and a market-value-weighted index. DECEMBER 31, 2011 DECEMBER 31, 2012 Shares Shares Price Outstanding Price Outstanding Stock K 20 100,000,000 32 100,000,000 4,000,000 Stock M 80 2,000,000 45 Stock R 40 25,000,000 42 25,000,000 "Stock split two-for-one during the year. a. Compute the percentage change in the value of each index during the b. Explain the difference in results between the two indexes. c. Compute the percentage change for an unweighted index and discuss why these results year. differ from those of the other indexes.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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