“Sum of money is worth more now than the same sum of money in the future”. Critically evaluate the meaning of the above by differentiating the present value with the future value of money. ii Tesco Company currently pays a dividend of Rs. 2.00 per share and this dividend are expected to grow at a 15% annual rate for 3 years, after which it is expected to grow at an 8 % rate forever. What value could you place on the equity if a 9 % rate of return were required? iii Amaya Construction is a company engaged in the construction of Roads. On 1 January 2018, it issued 5,000 5-year bonds with a par value of Rs.1,000 per bond. They have a current market price of Rs.975, carry an annual coupon rate of 9% and are callable at Rs. 1050 any time in 3rd year. The interest rate in year 3 is 10%. Estimate the yield to call (YTC) and yield to maturity (YTM) and tell which rate is a better estimate of the expected rate of return on the bond.
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.
“Sum of money is worth more now than the same sum of money in the future”.
Critically evaluate the meaning of the above by differentiating the
with the
ii Tesco Company currently pays a dividend of Rs. 2.00 per share and this dividend
are expected to grow at a 15% annual rate for 3 years, after which it is expected
to grow at an 8 % rate forever. What value could you place on the equity if a 9 %
iii Amaya Construction is a company engaged in the construction of Roads. On 1
January 2018, it issued 5,000 5-year bonds with a par value of Rs.1,000 per bond.
They have a current market price of Rs.975, carry an annual coupon rate of 9%
and are callable at Rs. 1050 any time in 3rd year. The interest rate in year 3 is 10%.
Estimate the yield to call (YTC) and yield to maturity (YTM) and tell which rate
is a better estimate of the expected rate of return on the bond.
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