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Calculate the value of common stock

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Reference no: EM133110610

Problem 1 

Suppose you as an investor consider a portfolio which includes Tesco and Albert stocks:  

  • Invest 30% in Tesco 2 months ago at 50/share, 1 month ago price was 55 and you sell the stock this month for 60.
  • Invest 70% in Albert 2 months ago at 40/share, 1 month ago price was 42 and you sell the stock this month for 38.

None of these 2 stocks pay any dividends. 

Please calculate the 2-month portfolio return.

Problem 2 

Suppose XYZ company is a very mature company which last dividend was 2.5 per share. The dividends will remain constant forever. 

1. Calculate the value of common stock, if the required return is 15%? 

2. If the company's risk as perceived by market rises and the required return rises to 20%, what will be the stock value? 

3. What impact does risk have on the stock value?

Reference no: EM133110610

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