List three limitations of this type of model

Assignment Help Financial Management

Reference no: EM131551590

Today is Jan. 1, 2017. The expected dividend per share of ABC company by Dec 31, 2017 is $1.10. The annual growth rates are 10%, 8% and 6% for the years 2018, 2019, and 2020 respectively and then there will be a constant annual growth rate of 4% thereafter. The 10-year treasury note is 2%. In terms of beta, the ABC company is twice as risky as the general market. The market risk premium is 6%. The stock is currently trading at $20.

1. The expected dividend in December of the year 2020 is $.............

2. The discount rate for the stock of ABC company is …………….

3. Assuming a discount rate of 10% (other information the same as mentioned in the case above) the price as of Jan 1, 2021 should be $...................

4. List three limitations of this type of model that we use for pricing a stock.

5. If the intrinsic price (your computed price) as of today is $19, what is your recommendation (BUY, SELL, or NOT TRADE) if the margin of error is 10%.

Reference no: EM131551590

Questions Cloud

Marketing team believes sales will continue to increase : Your marketing team believes sales will continue to increase by 4% each year.

What is the break-even price for the option : A call option on UK pounds has a strike price of $2.05/£ and a cost of $0.02. What is the break-even price for the option?

Operating and cash cycle better : Ansley Inc. wants to understand its operating and cash cycle better. calculate their operating and cash cycle.

The call premium and put premium of the stock price : A stock price is trading today at $100. The call premium and put premium is 10% of the stock price as of today.

List three limitations of this type of model : The expected dividend in December of the year 2020. List three limitations of this type of model that we use for pricing a stock.

One problem with the irr method : One problem with the IRR method is that: it does not take account of cash flows over a project’s full life.

Joined the investment banking firm of dreamville : You've just joined the investment banking firm of Dreamville. If the interest rate is 9 percent compounded monthly, what is the PV for both the options?

Continuously compounded annual rate of return on this bond : What is the continuously compounded annual rate of return on this bond if purchased today?

What is the balance owed on your loan when the first payment : What is the balance owed on your loan when the first payment is due? (Assume a 365-day year.)

User Account

All Pages