John made the following investments in Stock A. Calculate his money-weighted return earned over the 5-year period. The cost of equity for Stock A is 10% p.a. 1 2 3 4 5 Balance from previous year 0 50 1000 1270 1500 New investment by investor 100 950 0 230 0 Net balance at beginning of year 100 1000 1000 1500 1500 Investment return for the year -50% 35% 27% 10% 20% Investment gains or (loss) -50 350 270 150 300 Withdrawal by investor 0 -350 0 -150 -1800 Balance at end of year 50 1000 1270 1500 0
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.
- John made the following investments in Stock A. Calculate his money-weighted return earned over the 5-year period. The
cost of equity for Stock A is 10% p.a.
|
|
1 |
2 |
3 |
4 |
5 |
|
Balance from previous year |
0 |
50 |
1000 |
1270 |
1500 |
|
New investment by investor |
100 |
950 |
0 |
230 |
0 |
|
Net balance at beginning of year |
100 |
1000 |
1000 |
1500 |
1500 |
|
Investment return for the year |
-50% |
35% |
27% |
10% |
20% |
|
Investment gains or (loss) |
-50 |
350 |
270 |
150 |
300 |
|
Withdrawal by investor |
0 |
-350 |
0 |
-150 |
-1800 |
|
Balance at end of year |
50 |
1000 |
1270 |
1500 |
0 |
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