You bought a stock at $90 last year. After one year, you received a dividend of $5.00, and then sold the stock for $98.00. Calculate the rate of return on your investment
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.
The dividend
|
YEAR |
EXPECTED DIVIDEND (Ghc) |
|
1 |
1 |
|
2 |
2 |
|
3 |
2.50 |
After the third year, the dividend grows at a constant rate of 5 percent per year. The required return is 10 percent. What is the value of the stock today?
1. Calculate the fair market price of a stock that just gave a dividend of $1.50, and the long-term annual growth rate of the company is 3%. Investors require a return of 16% from such a stock
2. You believe that there is a 30% probability that the dividend paid by IBM next year is going to be $9.00, and a 70% probability that the dividend will increase to $10.00. You also feel that IBM will grow at the rate of 8% for the long term. Your required
3. Wilson Corp preferred stock pays annual dividend of $8. The preferred stockholders have a required rate of return of 11%. Find the price of a Wilson
4. You bought a stock at $90 last year. After one year, you received a dividend of $5.00, and then sold the stock for $98.00. Calculate the rate of return on your investment.
5. Rudolph Co stock has just paid its annual dividend of $2.25. The expected growth rate of Rudolph is 7% in the long run. If your required rate of return is 16%, how much should you pay for a share of Rudolph stock?
PLEASE SOLVE FROM 4) TO 5) ONLY
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