GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
11th Edition
ISBN: 9781260201550
Author: Bodie
Publisher: MCG
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Chapter 18, Problem 2CP
Summary Introduction
To calculate: By using two stage
Introduction:
The current value share is determined by the division of dividend by expected return in first year and the division of the dividend by the difference between expected return and growth which is further divided by the expected return pus one of the third year.
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O Below is the stock price and dividend history for No-Cameras-Allowed Inc. (NCA), a
company organizing Las Vegas retreats for investment banks.
Stock Price (end-of-year)
Dividend (paid during the year)
Year
2019
90
180
18
2020
2021
120
6.
a. Compute the annual return in 2020 and 2021.
b. Compute the arithmetic average return over the 2019–2021 period.
c. Compute the geometric average return over the 2019–2021 period.
d. You buy 2,000 shares of NCA at the end of 2019 and hold them through the
end of 2021. You reinvest any dividends received (i.e., you use the dividend
proceeds to buy more shares of NCA). Except for reinvestment of dividends,
you neither buy nor sell any shares before the end of 2021.
Which average, arithmetic or geometric, better captures your investment
performance over the 2019–2021 period? Please provide a brief explanation for
your answer.
B Focus
MacBook Pro
Suppose you purchased Spotlight Co.'s stock on Nov 1, 2015 and held it for one year,
selling on Oct 31, 2016. What was your annual realized return?
Price
Dividend
Date
Nov 01 15
Feb 15 16
Aug 15 16
Oct 31 16
30
28
27
29
55
1.5
0.5
Use the historical dividend data below to calculate the constant growth rate, estimate the price of O'Brien Ltds’ common stock knowing that the investor has an 19% required rate of return.
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
$0.41
$0.48
$0.56
$0.65
$0.75
$0.88
$0.99
$1.10
$1.13
$1.39
Question 10Answer
a.
g= 17.50% and Price (P0) = $56.43
b.
g= 14.04% and Price (P0) = $31.49
c.
g= 27.4% and Price (P0) = $300.81
d.
g= 14.53% and Price (P0) = $35.60
Chapter 18 Solutions
GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
Ch. 18 - Prob. 1PSCh. 18 - Prob. 2PSCh. 18 - Prob. 3PSCh. 18 - Prob. 4PSCh. 18 - Prob. 5PSCh. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Prob. 8PSCh. 18 - Prob. 9PSCh. 18 - Prob. 10PS
Ch. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Prob. 13PSCh. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Prob. 16PSCh. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - Prob. 5CPCh. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CP
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY