Purchase Solution

Stock Valuation

Not what you're looking for?

Ask Custom Question

Stock XYZ (end of the year values)
2003 2004 2005 2006 2007
Stock Price $20.50 $24.00 $36.25 $43.00 $56.50
Dividends $0.23 $0.23 $0.25 $0.27 $0.31

1. Calculate the compound annual rate of return on the stock investment.
2. For the dividends, calculate the a-arithmetic average annual growth rate, and b-geometric mean growth rate.
3. Using the growing perpetuity model (also called the dividend discount model) and the growth rate you determined in the previous question, solve for the shareholders' required rate of return that is implied by the 2007 stock price.(This is discount rate in the model). If you were unable to solve problem 2-b, assume a growth rate of 2.0 percent.

Purchase this Solution

Solution Summary

Calculates the compound annual rate of return on the stock investment. Also for the dividends, calculates the arithmetic average annual growth rate, and geometric mean growth rate. Using the growing perpetuity model (also called the dividend discount model) and the growth rate you determined previously, solves for the shareholders' required rate of return.

Solution Preview

Please see the attached file:

Stock XYZ (end of the year values)
2003 2004 2005 2006 2007
Stock Price $20.50 $24.00 $36.25 $43.00 $56.50
Dividends $0.23 $0.23 $0.25 $0.27 $0.31

1.           Calculate the compound annual rate of return on the stock investment.

Year Stock Price Dividends
2003 $20.50
2004 $24.00 $0.23
2005 $36.25 $0.25
2006 $43.00 $0.27
2007 $56.50 $0.31
Total $1.06

Number of ...

Purchase this Solution


Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.