Chapter7Model

# Chapter7Model - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17...

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6/19/2007 Chapter 7. Ch 7-20 Build a Model 1. Find the price today. \$1.60 10.0% 20% Short-run g; for Years 1-2 only. 6% Long-run g; for Year 3 and all following years. 20% 6% Year 0 1 2 3 Dividend \$1.60 \$1.92 \$2.30 \$2.44 PV of dividends \$1.7455 1.9041 2.4422 \$50.4595 61.0560 4.0% \$54.1091 2. Find the expected dividend yield. Dividend yield = / Dividend yield = \$1.920 / \$54.109 Dividend yield = 3.55% 3. Find the expected capital gains yield. The capital gains yield can be calculated by simply subtracting the dividend yield from the total expected return. Cap. Gain yield= Expected return - Dividend yield Cap. Gain yield= 10.0% - 3.55% Cap. Gain yield= 6.45% = + (1 + r) = 61.0560 + \$2.30 1.1 = \$57.60 Cap. Gain yield= / Cap. Gain yield= \$3.49 / \$54.1091 Cap. Gain yield= 6.45% 1. Find the price today. \$1.60 10.0% 20% Short-run g; for Years 1-5 only. 6% Long-run g; for Year 6 and all following years. 20%
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