Consider a share of stock in a company that will pay a dividend of $20 one year from today and immediately liquidate its assets. Your expected share of the liquidated assets is $5. Your time value of money is such that you consider $1.05 a year from today is equivalent to $1.00 today. What is the maximum you would be willing to pay for a share of stock in this company? a. $25.00 b. $17.39 c. $23.81 d. $20.00 2. An example of a currency board regime might be if the United States were to pledge to a. undertake an intervention in the currency market if the US dollar approaches the lower bound. b. convert or exchange US dollars for the euro at any time at a stated fixed price because the euro is the anchor currency of the US dollar. c. undertake an intervention in the currency market if the US dollar approaches the upper bound. d. undertake an intervention in the currency market if the euro approaches either the upper or lower bound.
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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Consider a share of stock in a company that will pay a dividend of $20 one year from today and immediately liquidate its assets. Your expected share of the liquidated assets is $5. Your
time value of money is such that you consider $1.05 a year from today is equivalent to $1.00 today. What is the maximum you would be willing to pay for a share of stock in this company?a. $25.00b. $17.39c. $23.81d. $20.002. An example of a currency board regime might be if the United States were to pledge toa. undertake an intervention in the currency market if the US dollar approaches the lower bound.b. convert or exchange US dollars for the euro at any time at a stated fixed price because the euro is the anchor currency of the US dollar.c. undertake an intervention in the currency market if the US dollar approaches the upper bound.d. undertake an intervention in the currency market if the euro approaches either the upper or lower bound.
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