A friend tells you he is interested in a market linked GIC offered by Canadian Bank of the Empire. This GIC has the following terms • It is a 3 year non-redeemable product • A guaranteed return of 3% • It allows you to fully participate in the return (price appreciation only) of the TSX 60 index up to 14% The current level of the TSX 60 index is 950.33. The index has a dividend yield of 1% and its volatility (standard deviation of returns) is 20%. Canadian Bank of the Empire also offers a standard 3 year non-redeemable GIC that pays 2.25%. The current risk free rate is 2%. a. The (Click to select) product dominates the (Click to select) ✓ product by dollars. b. If the MLGIC had a 70% participation rate (that is you only got 70% of the appreciation over 3%) and no maximum upside, the return on the TSX 60 would need to be greater than % for the market link to provide benefits. (if your answer is 0.001985 record 0.1985. If your anwer is 0.015, record 1.5000)
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.
Drop down menus: option 1: MLGIC, Option 2: Vanilla GIC
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