4301 Words18 Pages

Financial Market Revision
Question 1 Performance Evaluation Calculation Discursive 20% 80% Question 2 Dividend Valuation Model 45% 55% Question 3 Option strategies Straddles 80% 20% Question 4 Duration and convexity –Price – yield relationship 30% 70% Question 5 Option and Futures -mixed N/A 100% Question 6 CAPM 40% 60%
Dividend Discount Models 1. The intrinsic value, denoted V0, of a share of stock is defined as the present value of all cash payments to the investor in the stock, including dividends as well as the proceeds from the ultimate sale of the stock, discounted at the appropriate risk-adjusted interest rate, k. Whenever the intrinsic value, or the investor’s own estimate of what the stock is really worth, exceeds the market*…show more content…*

What is the firm value, assuming no growth opportunities? What is the present value of the firm’s growth opportunities? The risk free rate of return on Treasury bills is 4.8%. The market risk premium is 6% and Innovation’s share beta is 1.2. b) Calculate Innovation’s price-earnings ratio and the price-book ratio (i.e. the ratio of the market value to book value) as of 31 December 2002. c) What are the advantages and disadvantages of each of the three valuation methods used in (a), and (b)? d) State whether Innovation’s share is overvalued or undervalued as of 31 December 2002. Support your conclusion using your answers to previous questions and any data provided. The past 10-year average FTSE All Share index relative price-earnings and price-book ratios for Innovation were 0.4 and 1.12, respectively. 9 a. Dividend Discount Model The oldest discounted cash flow models in

What is the firm value, assuming no growth opportunities? What is the present value of the firm’s growth opportunities? The risk free rate of return on Treasury bills is 4.8%. The market risk premium is 6% and Innovation’s share beta is 1.2. b) Calculate Innovation’s price-earnings ratio and the price-book ratio (i.e. the ratio of the market value to book value) as of 31 December 2002. c) What are the advantages and disadvantages of each of the three valuation methods used in (a), and (b)? d) State whether Innovation’s share is overvalued or undervalued as of 31 December 2002. Support your conclusion using your answers to previous questions and any data provided. The past 10-year average FTSE All Share index relative price-earnings and price-book ratios for Innovation were 0.4 and 1.12, respectively. 9 a. Dividend Discount Model The oldest discounted cash flow models in

Related

## Dividend Discount Model

596 Words | 3 PagesDividend discount model Dividend discount model (DDM) is a way of valuing a share based on the net present value of the dividends that you expect to receive in the future. According to the DDM, dividends are the cash flows that are returned to the shareholder. FY 2002 2003 2004 2005 2006 2007F 2008F 2009F Share price 0.155 0.150 0.230 0.370 0.450 0.450 Dividends per share 0.005 0.012 0.014 0.012 0.013 0.019 0.0178 0.020 Dividend Growth 0.0833 0.258 0.014 0.014 Dividend rates

## Cash Flow Model And The Dividend Discount Model Essay

1272 Words | 6 Pagesdiscounted cash flow model and the dividend discount model. The purpose of the discounted model is to determine the value of the firm and its stock. It uses future cash flow projections discounted back to the present values to estimate the potential for the investment. (Discounted Cash Flow (DCF), n.d.) Another valuation method is the dividend discount model. This method uses predicted dividends and discounting them back to the present value to obtain a value price. Both models were used to evaluate

## Notes On Bonds Valuation And Bond Rates

1107 Words | 5 PagesYield-to-Maturity (RATE) Market Value (Quote) Discount, Premium, Par A-Rated General Electric Capital/AA $1,000 4.00% $ 40.00 15 3.897% $1,011.70 Premium B-Rated Hercules Inc./BB $1,000 6.50% $ 65.00 15 5.944% $1,055.00 Premium C-Rated Albersons Inc./CCC $1,000 8.00% $ 80.00 17 8.053% $ 995.00 Discount Explain the relationship observed between ratings and yield to maturity. So By looking at Coupon Rate & YTM, one can predict of Bond is traded at Par, Discount or Premium Explain why the coupon rate

## Dividend Theory And Growth Model

1177 Words | 5 PagesDividend is that part of earning which is distributed among the shareholders. The decisions about when and how much earnings should be paid as dividends is part of the firm 's dividend policy. It is irrefutable that dividend policy is controversial issue as some people opine that dividends are relevant for the valuation of company and others think that dividend does not effect the market price of shares and valuation of firm. Besides this, the market where long term investment like share bonds are

## Valuation Is The Price Of Everything, But The Value Of Nothing

1646 Words | 7 Pagesaims to be as high as possible and will have an effect on corporate decisions, including projects to develop and where to find funds, and on the dividend policy. In such a way to study the topic, we will discuss first the Net Asset Value and its advantages and disadvantages, then the Discounted cash flow method and to finish the dividend discount model. The net asset value (NAV) method measures the value of a fund’s assets. It enables investors to analyse a fund’s performance market and industry

## Essay about Valuing Coca Cola Stock

1214 Words | 5 PagesFlorida FIN 4414 Abstract Taking the role as Jessie Jones, we will analyze whether to recommend the Coca Cola stock to potential clients or current clients that do not have it in their portfolio. By using the Capital Asset Price Model (CAPM), Dividends Discount Model (DDM) and the Price/Earnings (P/E) ratio we will come to a conclusion. Background The Coca Cola Company, which is based out of Atlanta, Georgia, is a leader in the global soft drink market. It owns subsidiaries in over

## Essay about Solutions to Valuation Questions

1712 Words | 7 Pagescompany’s equity cost of capital. • re = RF + β * (RM – RF) = 0.05 + 1.5 * 0.04 = 11% b. Compute the expected net distributions to stockholders for each future year. • D = NI – ΔCE = $1,100 – 0 = $1,100 c. Use the dividend discount (i.e., free cash flow to equity investors) valuation model to estimate the company’s current stock price. • Pe = D / re = $1,100 / 0.11 = $10,000 • price per share = $10,000 / 1,000 = $10 2. Same facts as in (1) above, but assume you expect the company’s income to be $1

## The Next Three Years Performance

1287 Words | 6 Pagesper share and dividend per share are estimated increase from 15.4 in 2016 to 19.2 in 2018. However, the rate of dividend might be stable after an obviously decrease in 2015. Chapter 5 Valuation First-year forecast of sales, EBITDA, and dividend are already discussed in Future Forecast part. Here is a deeper analysis for valuation of Novo Nordisk. Valuation model can be divided two types. Intrinsic valuation is chosen as the primary valuation, which includes Dividend Discount Model, and Free Cash

## Financial Question

1437 Words | 6 Pages018518519 = -1.85% Chapter 6: Problems 1, 2, 3, 4, 13, 17, 19 and 32 1. Dividend Discount Model. Amazon.com has never paid a dividend, but in June 2005 the market value of its stock was $13 billion. Does this invalidate the dividend discount model? No. 2. Dividend Yield. Favored stock will pay a dividend this year of $2.40 per share. Its dividend yield is 8 percent. At what price is the stock selling? Dividend yield = Dividend ÷ Price 8% = 2.4/p p=2.4/.08 = 30 The price of the stock is $30. 3.Preferred

## Financial Outcomes Paper

1657 Words | 7 Pagesconclusion, Wal-Mart’s intrinsic value should be evaluated. The intrinsic value is what investors consider the company to be worth. By evaluating the expected dividends compared to the rate of return and the expected value a year out, an appropriate present value stock price can be determined. For Wal-Mart, the expected dividends are $1.09 per share with an expected rate of return at 21%, and an expected stock value of $60.67, Wal-Mart’s intrinsic value is $51.04. Based on the intrinsic value

### Dividend Discount Model

596 Words | 3 Pages### Cash Flow Model And The Dividend Discount Model Essay

1272 Words | 6 Pages### Notes On Bonds Valuation And Bond Rates

1107 Words | 5 Pages### Dividend Theory And Growth Model

1177 Words | 5 Pages### Valuation Is The Price Of Everything, But The Value Of Nothing

1646 Words | 7 Pages### Essay about Valuing Coca Cola Stock

1214 Words | 5 Pages### Essay about Solutions to Valuation Questions

1712 Words | 7 Pages### The Next Three Years Performance

1287 Words | 6 Pages### Financial Question

1437 Words | 6 Pages### Financial Outcomes Paper

1657 Words | 7 Pages