Consider two secunitios that pay rsk free cash flows over the next two years and that have the current market prices shown here (Click on the following icon a in order to copy its contents into a spreadshoet) Security B1 Price Today $384 Cash Flow in One Year $400 Cash Flow in Two Years B2 $344 $400 a. What is the no-arbitrage price of a secunity that pays cash flows of Ss400 in one yoar and $400 in two years? b. What is the no-arbitrage price of a security that pays cash flows of $400 in one yoar and $2,800 in two yoars? c. Suppose a security with cash flows of $200 in one year and $400 in two years is trading for a price of $520 What arbitrage opportunity is available? a. What is the no -arbitrage price of a secunity that pays cash fows of $400 in one yoar and $400 in two yoars? The no arbitrage price is s (Round to the noarest dollar) b. What is the no-arbitrage price of a security that pays cash flows of $400 in one yoar and $2,800 in two years? The no arbitrage price is s (Round to the nearest dollar ) c. Suppose a secunty with cash flows of $200 in one year and $400 in two years is trading for a price of $520 What arbitrage opportunity is available? (Select the best choice below) OA Buy two shares of the security and sell one share oach of B1 and 82 O B. Buy two shares of the secunty and sell one share of B1 and two shares of B2 OC. Sell two shares of the security and buy one share of B1 and two shares of 82 O D. Sell two shares of the security and buy one share each of B1 and 82.
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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