Danny operates a plumbing business, and this year the three-year-old van he used in the business was destroyed in a traffic acci
1 answer:
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Answer:
the intrinsic value of the stock is 42.97
If the stock is priced at 40 dollars it would be a good idea to purchase the share as will provide a better yield than the cost of capital of 9.6%
Explanation:
First, we solve for the cost of equity using the CAPM:
risk free = 0.03
market rate = 0.09
premium market = (market rate - risk free) = 0.055
beta(non diversifiable risk) = 1.2
Ke = 0.09600
<em>Now we solve for the intrinsic price using the gordon model</em>
<em>with multi-stage growth:</em>
First, we calcualte the future dividends
grow rate Dividends
0 1.25
1 0.25 1.5625
2 0.25 1.953125
3 0.25 2.44140625
4 0.25 3.051757813
4 0.03 3.143310547
Now in the last year, we calcualte using the gordon model or constant grow:
32.7128182
Now we calculate and add together the present value of each of this future cash flow to determnate the intrinsic value ofthe share:
Present Value
1 1.5625 / (1+0.096)^1 = 1.425638686
2 1.953125 / (1+0.096)^2 = 1.625956531
and so on, giving the following values:
3 1.854421226
4 2.114987712
present value of the future dividends at 3% 22.67126448
<u>Finally we add them and get:</u>
42.97160726
Answer:
So after 5 year total amount will be $1781.529
So option (a) is correct option
Explanation:
We have given that JG Asset is recommending that you invest $1500 for 5 years at rate of 3.5%
So principle amount P = $1500
Rate of interest r = 3.5 %
Time n = 5 years
We know that when total amount is given by
, here r is rate of interest and n is time period
So amount after 5 years will be
So after 5 year total amount will be $1781.529
So option (a) is correct option