Dividend Discount Model Question

Rank: 2

UID: 223292
帖子: 219
主题: 105
注册时间: 2011-7-11
最后登录: 2013-9-10

2^#

发表于 2011-7-11 18:13 | 只看该作者

Good question...

RobertA

UID: 223328
帖子: 372
主题: 108
注册时间: 2011-7-11
最后登录: 2013-8-13

3^#

发表于 2011-7-11 18:13 | 只看该作者

B.) 39 dollars?

hkese Wrote:
-------------------------------------------------------
> Brandy Clark, CFA, has forecast that Aceler, In.
> will pay its first dividend two years from now in
> the amount of $1.25. For the following year she
> forecasts a dividend of $2.00 and expects
> dividends, to increase at an average rate of 7%
> for the foreseeable future after that. If the
> risk-free rate is 4.5%, the market risk premium is
> 7.5%, and Aceler's beta is 0.9, Clark would
> estimate the current value of Aceler shares as
> being cloest to:
>
> A. $37
> B. $39
> C. $47

hariRaj

UID: 223329
帖子: 304
主题: 136
注册时间: 2011-7-11
最后登录: 2013-9-27

4^#

发表于 2011-7-11 18:13 | 只看该作者

I got 38.45...I hate having rounding errors!

Edited 1 time(s). Last edit at Wednesday, May 26, 2010 at 09:37PM by nickfaulkner.

cyber21

UID: 223242
帖子: 577
主题: 272
注册时间: 2011-7-11
最后登录: 2016-4-19

5^#

发表于 2011-7-11 18:14 | 只看该作者

Ke = 4.5% + .9(7.5%)
Ke = 11.25%

P0 = (1.25 / 1.1125^2) + [(2 / (.1125 - .075)) / 1.1125^2]

P0 = (1.25 / 1.1125^2) + (47.06 / 1.1125^2)

P0 = $39

Siddimaula

Rank: 2

UID: 223260
帖子: 267
主题: 112
注册时间: 2011-7-11
最后登录: 2013-9-22

6^#

发表于 2011-7-11 18:14 | 只看该作者

i thought B as well, defeinitely not C.

whats the discount rate?

draz

Rank: 2

UID: 223281
帖子: 264
主题: 128
注册时间: 2011-7-11
最后登录: 2016-4-18

7^#

发表于 2011-7-11 18:14 | 只看该作者

why do you use Ke to discount it but not the rfr?

shootingstar

Rank: 2

UID: 223278
帖子: 283
主题: 138
注册时间: 2011-7-11
最后登录: 2016-4-21

8^#

发表于 2011-7-11 18:14 | 只看该作者

ok, you always use Ke to discount back in this model i remember now.

kasinkei

UID: 223330
帖子: 360
主题: 131
注册时间: 2011-7-11
最后登录: 2013-8-18

9^#

发表于 2011-7-11 18:14 | 只看该作者

Schweser solution: The required rate of return on Aceler shares is 4.5 + 0.9(7.5) = 11.25%. The dividend at t = 3, $2.00, is expected to grow at. 7% for the foreseeable future so the DDM value of Aceler shares at r = 2 is 2/(0.1125 - 0.07) = 47.06. The t 11. D = 0 value df rhe shares is (47.06 + 1.25)/1.1125 2 = $39.03.

Ke represents required rate of return. I would be investing in Treasury Securities not Aceler if i wanted RFR. Since i need a higher rate to part with my money which Ke represents, it becomes the discount rate.

Mechanic

UID: 223246
帖子: 623
主题: 312
注册时间: 2011-7-11
最后登录: 2013-10-11

10^#

发表于 2011-7-11 18:14 | 只看该作者

I am pretty sure there will be a question like this on the 5th.

Edited 1 time(s). Last edit at Wednesday, May 26, 2010 at 10:22PM by nickfaulkner.