Assume you plan to invest a one-lump sum of $25,000 in the stock market for the next 10 years at a 4.75% annual return but will only do this, if and onlylif, the amount at the end of years equals $40,000. Would you make such investment? Use an Excel formula to 10 support your answer.
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.
The stock market is the market where the stocks and securities of various companies are traded which means that the stocks are bought and sold by investors who claim to be owners of the shares of companies because these shares give them the right to ownership and the investors are known as shareholders.
The lump-sum investment by the investors is to be made if and only if the investment reaches a certain value at the end of the time period of the investment. Therefore, to ascertain the possibilities of such investment, the future of the investment is to be determined. The future value is the value at the end of a certain future period for an investment.
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