The Price Of A Coca Cola

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The graph below represents the price of a Coca-Cola stock from 1988 onwards (the availability of the data is from 1988). Over the past three or four years from 2012 onwards, the price of the stock has fallen from around $14 to around $9. A reasonable growth rate for the company in the future would be around 1 to 2%, taking into account of macroeconomic conditions and changes in consumer preferences. However, since Coca-Cola is a global brand with relatively large market share, the duration of decline in company performance will be shorter. As an approximation, the growth of the company will grow around 2% a year.
Dividend Discount Model
The dividend discount model (DDM) is a method for valuing the price of a stock by using past historical data to predict future dividends and then discounting them back to present value. It can be deduced that if the value obtained from the DDM is higher than what the shares are currently trading at, then the stock is undervalued. In other words, the value of a stock is equal to the future value of all the dividends, discounted by an appropriate risk-adjusted rate. This is because no stock is ultimately worth more than what it will provide investors in terms of current and future dividends.
To calculate the value for a stock, the formula is given:

From part (3), the discount rate is 5.38% and from part 4, the growth rate is 2%.
On average, the dividend return per share is 22.61c. This is on average for every dividend distribution from

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