标题: Dividend Discount Model Question [打印本页] 作者: Bad5shah 时间: 2011-7-11 18:13 标题: Dividend Discount Model Question
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作者: farrukhsadiq 时间: 2011-7-11 18:13
Good question...作者: RobertA 时间: 2011-7-11 18:13
B.) 39 dollars?
hkese Wrote:
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> 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作者: hariRaj 时间: 2011-7-11 18:13
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.作者: cyber21 时间: 2011-7-11 18:14
whats the discount rate?作者: draz 时间: 2011-7-11 18:14
why do you use Ke to discount it but not the rfr?作者: shootingstar 时间: 2011-7-11 18:14
ok, you always use Ke to discount back in this model i remember now.作者: kasinkei 时间: 2011-7-11 18:14
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.作者: Mechanic 时间: 2011-7-11 18:14
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.
