Question

Answer in one line:

list three properties of short working capital portfolios?

Concept of externalities with example?

A bank pays 12% compounded quarterly, what is the effective 1-month rate?

Solution this question:

LULU ZU UUPULUI (b) Today Metro Company paid a $1 annual dividend per share and had a closing price of $20. Assume that the market expects that this company's annual dividend to grow at a constant 5 percent rate forever Determine the expected dividend yield and expected capital gain yield

Answer 1

(b) Current Dividend = D0 = $ 1, Current Price = P0 = $ 20, Growth Rate = g = 5 %, Expected Dividend = D1 = 1 x 1.05 = $ 1.05

Cost of Equity (expected return) = (D1/P0) + g = (1.05/20) + 0.05 = 0.1025 or 10.25 %

Expected Dividend Yield = (d1/p0) = (1.05/20) = 0.0525 or 5.25 %

Capital Gains Yield = Expected Return - Expected Dividend Yield = 10.25 - 5.25 = 5 %