Suppose XYZ were to do a share split of two to one and the share price falls to K50. (1) Calculate the new divisor that would leave the index unchanged. Explain why this is done. (2) What is a share split, and why is this done? Discuss (3) Suppose XYZ’s final price increases to K110, while ABC price, calculate the percentage change in the price weighted index of the two stocks. Compare that to the percentage return of a portfolio that holds one share in each company. And assume that it is held to maturity and the company does not default on it.
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.
Suppose XYZ were to do a share split of two to one and the share price falls to K50.
(1) Calculate the new divisor that would leave the index unchanged. Explain why this is done.
(2) What is a share split, and why is this done? Discuss
(3) Suppose XYZ’s final price increases to K110, while ABC price, calculate the percentage change in the price weighted index of the two stocks. Compare that to the percentage return of a portfolio that holds one share in each company. And assume that it is held to maturity and the company does not default on it.
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