a) Assume that the risk free rate of return is 6%, the market expected rate of return is 10%. The standard deviation of the market return is 4% while the covariance of return for security A and the market is 3%. Compute the required rate of return on Security A? b) The Managing Directors of three profitable listed companies discussed their companies dividend policies at a business lunch. Company A has deliberately paid no dividends for the last five years. Company B always pays a low dividend per share (after adjusting for the general price index) and offer regular bonus issues. Company C always pays a dividend of 50% of earnings after taxation. Each Managing Director is convinced that his company policy is maximizing shareholders wealth. Required: Discuss the dividend policies used by the three companies.
a) Assume that the risk free
b) The Managing Directors of three profitable listed companies discussed their companies
dividend policies at a business lunch.
Company A has deliberately paid no dividends for the last five years.
Company B always pays a low dividend per share (after adjusting for the general price index) and offer regular bonus issues.
Company C always pays a dividend of 50% of earnings after
Required:
Discuss the dividend policies used by the three companies.
Step by step
Solved in 5 steps
