One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 1. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). 2. Will you buy these shares? Discuss your reasons briefly in no more than 50 - 100 words and support your reasoning with relevant computations. 3. What might cause a difference between a share's intrinsic value and its market price? (100 - 150 words)
One of your colleagues has recommended that you buy 10 shares in a certain company, say, ABC Ltd. He tells you that the company has a good track record of paying regular dividend every year and the dividends are likely to grow at a rate of 4% per year on an average for the foreseeable future. The next dividend is expected to be $1.50 per share and the shares are selling in the secondary market for $28.50 per share. As per your financial plans and life profile, you feel that any risky investment like in shares of a company, should earn at least 9% per annum. 1. Compute the intrinsic value of the share (Intrinsic value of any financial instrument is the value that it should sell for in the market). 2. Will you buy these shares? Discuss your reasons briefly in no more than 50 - 100 words and support your reasoning with relevant computations. 3. What might cause a difference between a share's intrinsic value and its market price? (100 - 150 words)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:One of your colleagues has recommended that you buy
10 shares in a certain company, say, ABC Ltd. He tells
you that the company has a good track record of paying
regular dividend every year and the dividends are likely
to grow at a rate of 4% per year on an average for the
foreseeable future. The next dividend is expected to be
$1.50 per share and the shares are selling in the
secondary market for $28.50 per share.
As per your financial plans and life profile, you feel that
any risky investment like in shares of a company, should
earn at least 9% per annum.
1. Compute the intrinsic value of the share (Intrinsic value
of any financial instrument is the value that it should sell|
for in the market).
2. Will you buy these shares? Discuss your reasons
briefly in no more than 50 – 100 words and support your
reasoning with relevant computations.
3. What might cause a difference between a share's
intrinsic value and its market price? (100 – 150 words)
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