Question

Qua Ray Co. Ltd is currently paying fiso per share as dividend. The shares are currently being traded at the stock exchange at $6,000 per Share If the dividend are expected to grow at the rate of 8% per year, determine the discount rate or required rate of return. b) Asempa Ltd. pays $120 per Shore as dividend Currently. Dividend are expected to grow at 5% rate per annum into the foreseable future. If the required rate of return is 12% determine the value of the shamapen share per price of the share. Q2 45% of Richnee's is investment isin ABC shares and the remainder in QRS shares. Richnee expects a return of 21% in ABC and 18% on ORS. The Standard deviation on returns on ABC is 19% and QRS 21%. If the correlation Co-efficient between ABC and QRS is 0.082, Calculate : a) the expected return on the portfolio b) the standard deviation for the portfolio Crisk of the portfolio

Answer 1

Currently paid Dividend (6o $150 per shore Current Paice (Po) $6000 per Share Growth rate (g) 8% per year Discoumr Rak ke Al ber, Gordom's Geowth Model Po - Do (178) ke-g 6000 - 750 71+ 0.08) ke - 0.08 ke - 0.08 2 iso (1+0.08) 6000 ke 2 0·027 +0.08 = 0.102 OG 10.7% Jo, Discoumr ROK ? 10.70% pure gues b) Currimr Paid Dividend DO 2 8 120 pes Share Growth seak 9) 5% per ammum Required seal a sebesmike) 12% Shaus Doice the laws (Po) . ? As per Gotdom's xowth Model: Po ² Do (g) ke-g 120 (1+.05 0.12 -0.05 126 0.09 2) { 1800 por share Share buice of the share a $1,800 per there

4m vermemkin ABC (WABC) - 0.45 of 45% 4mvermum in ORS (Waas) - 0.55 On 55% Expecked Return im ABC (el2 021 or 21% Expected Reneem in gas (Rgps ) - 0.18 of 18% a) Glulation of_portfolio Return I » (RABL X WABC) + (RORS X Weas) + (0.21 X 0.45) + 6018 x 0.55) 0.0945 + 0.099 o 0:1935 om 19.35% b) Standard deviation in rekenen om ABC (OR) 2 0.19 19% Standard Deviation in scenarm om BRS (ARS) = 0.21 or 21% Correlation co-eficiener (JE ABC ARS) - 0.082 Calulation of standard deviation of porfolio :- (OABC WABC + Oges Wages) > Joaocủwage? + 6gas? Ngas? + 2 648CÓqas Waschgas SensCARI. 10:19*40.453]+[0.2022 (0.558}+ (2x 0.19 x 020x0.45X0.55. 1 (0.00731025) + (6. 01334025) + (0.001819541) 3) To.b.280317 0.022270041 X 0.082) 0.1492 89 14.92%

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