As the formula goes: capital gain = P1- P0
Last year Dividend |
2.00 |
|
growth rate |
0.20 |
|
dis rate |
0.15 |
|
3+ growth |
0.04 |
|
working |
||
Div 1 |
Div 1= 2*(1+0.2) |
2.40 |
Div 2 |
Div 2= 2.4*(1+0.2) |
2.88 |
Div 3 |
Div 3= 2.88*(1+0.2) |
3.46 |
TV |
= 3.456* (1+0.04)/(0.15-0.04) |
32.67 |
CF3 |
Div 3+ CF3 |
36.13 |
NPV= |
=NPV(0.15,2.4,2.88,36.13) |
28.02 |
So Price of stocl at year 0= $28.02
Working:
Dividend = last years dividend* (1+ growth rate) |
after 3 years , he will receive dividend at a constant growth of 4% |
so we need to find the value of dividend for infinite time |
which is = next years dividend/(discount rate – growth) |
next years dividend = This years dividend * (1+growth) |
so = 3.456* (1+0.04)/(0.15-0.04) |
This is the Price of the stock at year 0
Now, similarly we need to find the value of stock at year 1
For this we will now start with Div 2,
Last year Dividend |
2.00 |
|
growth rate |
0.20 |
|
dis rate |
0.15 |
|
3+ growth |
0.04 |
|
working |
||
Div 1 |
Div 2= 2.4*(1+0.2) |
2.88 |
Div 2 |
Div 3= 2.88*(1+0.2) |
3.46 |
TV |
= 3.456* (1+0.04)/(0.15-0.04) |
32.67 |
CF3 |
Div 2+ CF3 |
36.13 |
NPV= |
=NPV(0.15,2.88,36.13) |
₹ 29.82 |
So price in year 1= $29.82
So the capital gain = $29.82-28.02
= $1.80
= (29.82-28.02+2.4)/28.02
=0.15 or 15%
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