Subject: Corporate finance You have just inherited DKK 200,000, which you are going to invest in stocks. You are considering two stocks, DJH and SDR. The two stocks have the following returns during economic growth and economic recession: Economic growth Economic recession Stock DJH 0% 10% Stock SDR 15% -5% a) What is the expected return and standard deviation for stocks DJH and SDR? b) You consider buying both stock DJH and SDR. What is the expected return and standard deviation of your portfolio if you: ba. Invest DKK 6,000 in DJH and DKK 14,000 in SDR? bb. Invest DKK 10,000 in DJH and DKK 10,000 in SDR? bc. Invest DKK 14,000 in DJH and DKK 6,000 in SDR? bd. Invest DKK 18,000 in DJH and DKK 2,000 in stock SDR? c) You realize that the four portfolios above have different standard deviations. Explain intuitively why this is the case (1 to 10 sentences). d) Which of the four portfolios would you choose to invest in? Why?
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.
Subject:
You have just inherited DKK 200,000, which you are going to invest in stocks. You are considering two stocks, DJH and SDR. The two stocks have the following returns during
| Economic growth | Economic recession | |
| Stock DJH | 0% | 10% |
| Stock SDR | 15% | -5% |
a) What is the expected return and standard deviation for stocks DJH and SDR?
b) You consider buying both stock DJH and SDR. What is the expected return and standard deviation of your portfolio if you:
ba. Invest DKK 6,000 in DJH and DKK 14,000 in SDR?
bb. Invest DKK 10,000 in DJH and DKK 10,000 in SDR?
bc. Invest DKK 14,000 in DJH and DKK 6,000 in SDR?
bd. Invest DKK 18,000 in DJH and DKK 2,000 in stock SDR?
c) You realize that the four portfolios above have different standard deviations. Explain intuitively why this is the case (1 to 10 sentences).
d) Which of the four portfolios would you choose to invest in? Why?
Step by step
Solved in 3 steps with 8 images
