You are bullish on Zhu Que, Incorporated. You invest $10,000 of your own money and borrow $10,000 more from your broker (at 8 percent interest). You invest all of that in Zhu Que, Incorporated stock, buying for $100 per share. One year later, the price is now $115. Rate of Return if Price = Expected Market Price in one year Zhu Que, Incorporated Current Market Price (per share) $100.00 Expected Market Price in one year $115.00 Broker Interest Rate on Loan 0.08 Required Maintenance Margin 0.3 Investor Money to Invest $10,000 Money to Borrow $10,000 Required: Using the tables above, solve for the number of shares the investor can purchase, the rate of return if the price rises to the expected level and the stock price at which the investor receives a margin call. (Use cells A5 to B16 from the given information to complete this question.) Buyin on Margin Number of Shares Purchased Rate of Return if Price = Expected Market Price in one year Margin Call Price
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.
| You are bullish on Zhu Que, Incorporated. You invest $10,000 of your own money and borrow $10,000 more from your broker (at 8 percent interest). You invest all of that in Zhu Que, Incorporated stock, buying for $100 per share. One year later, the price is now $115. | |||||
| Zhu Que, Incorporated | |||||
| Current Market Price (per share) | $100.00 | ||||
| Expected Market Price in one year | $115.00 | ||||
| Broker | |||||
| Interest Rate on Loan | 0.08 | ||||
| Required Maintenance Margin | 0.3 | ||||
| Investor | |||||
| Money to Invest | $10,000 | ||||
| Money to Borrow | $10,000 | ||||
| Required: | |||||
| Using the tables above, solve for the number of shares the investor can purchase, the rate of return if the price rises to the expected level and the stock price at which the investor receives a margin call. | |||||
| (Use cells A5 to B16 from the given information to complete this question.) | |||||
| Buyin on Margin | |||||
| Number of Shares Purchased | |||||
| Rate of Return if Price = Expected Market Price in one year | |||||
| Margin Call Price | |||||
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