(e) Predict the rate of return of Company 2 if the rate of return of Company 1 is 0.15 (15%). The rate of return of Company 2 will be. (Round to four decimal places as needed.) (f) If the actual rate of return for Company 2 was 20.0% when the rate of return of Company 1 was 15%, was the performance of Company 2 above or below average among all years the returns of Company 1 were 15%? O Above average O Below average (g) Interpret the slope. Choose the correct answer below. O A. For each percentage point increase in the rate of return for Company 1, the rate of return of Company 2 will decrease by about 0.03 percentage points, on average. O B. For each percentage point increase in the rate of return for Company 1, the rate of return of Company 2 will increase by about 1.48 percentage points, on average. O C. For each percentage point increase in the rate of return for Company 1, the rate of return of Company 2 will increase by about 0.03 percentage points, on average. O D. For each percentage point increase in the rate of return for Company 1, the rate of return of Company 2 will decrease by about 1.48 percentage points, on average.
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 accompanying data represent the annual
Year Rate of Return of Company 1 Rate of Return of Company 2
1996 0.203 0.398
1997 0.310 0.510
1998 0.267 0.410
1999 0.195 0.436
2000 -0.101 -0.060
2001 -0.130 -0.151
2002 -0.234 -0.357
2003 0.264 0.328
2004 0.090 0.207
2005 0.030 -0.014
2006 0.128 0.093
2007 -0.035 0.027
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