An arrangement in which the seller carries back a note executed by the buyer to evidence a debt owed for the purchase of the sel
1 answer:
You might be interested in
Answer:
b. Stock X has the higher dividend yield.
Explanation:
We solve for the cost of equity of each stock using CAMP then, with the gordon model we determinate the price ofthe share expressed in Dividends.
<em><u>Stock X</u></em>
risk free = 0.046
market rate = 0.09
premium market = (market rate - risk free) 0.05
beta(non diversifiable risk) = 1.5
<em>Ke 0.12100</em>
<u><em>Dividend grow model:</em></u>
D/(r-g) = Value of the share
0.121 - 0.06 = 0.061
D/0.061 =<em> 16.39D</em>
<em><u>Stock Y</u></em>
risk free = 0.046
market rate = 0.09
premium market = (market rate - risk free) 0.05
beta(non diversifiable risk) = 0.5
<em>Ke 0.07100</em>
<em><u>Dividend grow model:</u></em>
D/(r-g) = Value of the share
0.071 - 0.06 = 0.011
D / 0.011 = <em>90.90D</em>
The stock X is value 16.39 times his dividends
while stock Y is valued 90.90 times his dividends
Thus, being Dividend Yield the Dividend per share over the price of the share it will be higher on stock X than stock Y