The value of a stock increases by 4% every year. At the beginning of February 1st, 2020 it is valued at 30 dollars per share. (a) Write a formula for the value of the stock (in dollars) as a function of time, t, in years after the beginning of February 1st, 2020. V = 30(1.04)^^t (b) What is the value of the stock at the beginning of February 1st, 2027? Value: 39.478 dollars (c) How quickly is the value of the stock increasing at the beginning of February 1st, 2027? Rate: 1.55 dollars per year (d) What is the continuous growth rate of V? That is, if the stock is growing like continuously compounded interest, what growth rate would give 4% growth per year? Rate: 0.03922 per year (e) What is the percentage rate of change in the value of the stock at the beginning of February 1st, 2027? Percentage rate: % per year (Compare this to your answer in part (d). Remember that this characteristic is the defining one for an exponential function, and it is why we care about the continuous growth rate in particular.
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.
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