Rate of return

Whereby D1 = Expected dividend per share for the next year k = Required rate of return (can be estimated using the CAPM or Dividend Growth Model) g = Expected dividend growth rate • Multi-Stage Growth Model In cases where dividends are not expected to grow at a constant rate, the investor must evaluate every year’s dividend separately. However, this model does assume that dividend growth…

December 2013 showed by the attached excel, the annualized expected return, standard deviation and correlation of the two stocks are calculated and revealed. Using the result of the closing price minus the opening price to divide by the opening price can figure out the monthly returns during the 5 years in order to obtain the average monthly return. Then, the average monthly return time 12 months that can lead to the annualized return. Afterwards, the standard deviation applies the formula…

For example, if σ = 45% and ρ = 0.2, then the standard deviation with 50 stocks would be 20.91%, and would rise to 22.05% when only 20 stocks are held. Such an increase might be acceptable if the expected return is increased sufficiently. Hennessy could contain the increase in risk by making sure that he maintains reasonable diversification among the 20 stocks that remain in his portfolio. This entails maintaining a low correlation among the remaining stocks. For example, in part (a), with ρ = 0…

assessee. The number of people being served with income tax notices has increased in the recent times partly because of the positive effects of improved monitoring as a result of stricter customer identification process and enhanced online tax filing returns on data processing. The benefit of…

the best method for investment project valuation (Goh, Kuo, Ong, & Rodrigues, 2009). It tells whether the investment will increase the firm’s value (Peterson-Drake, n.d.). Indicates whether a proposed project will yield the investor’s required rate of return (Jory, Benamraoui, Boojihawon, & Madichie, 2016). It is consistent with the theory of wealth maximization (Imegi, & Nwokoye, 2015). Moreover, net present value method considers all the cash flows, it makes use of all the project cash flows,…

The modern portfolio theory was based on risk and return trade-offs and was developed in earlier works of Harry Markowitz (1952, 1959) and Roy (1952). According to Markowitz (1952), risk can be eliminated through diversification by spreading the wealth across the assets. In his work, Markowitz (1959) implemented the theory of mean-variance of market portfolio which provided the initial foundation for capital asset pricing model. His model was a static model which assumed that investors tend to…

distribution dividend policy and the more the shareholder has to be compensated for the additional risk due to these uncertainties about future cash flows. This was basically what Myron Gordon argued about in 1959. He stated that the investor’s required rate of return rt would rise due to a rise in the firm’s profits. Although, the forthcoming dividends would probably be higher due to an increase in investment, Gordon perceived that a rise in rt would occur due to the higher uncertainty…

which is $95,000 to Harris and $120,000 to SBA loan, leaving less than $106,800 left for the two to divide, since Harris also demanded a interest at the prime rate. As Smith owns 51% of the company, his total earning in five years is $54,468, while Harris not only gets all of his loan back, he also puts in only $5,000 and gets $52,332 in return, an extra 10.5 times of what he had…

paper seeing a large amount of debt it has. It may rely on debt to obtain additional funds. So before it would be able to issue any commercial paper, it would have to go public (issue stock). b. When using a line of credit, the cost of forgoing the return on these securities is lower than the cost incurred. So for this reason, I think Carson should consider selling its holdings of Treasury securities. Chapter 7 Pg.186 Flow of funds exercise a. I will say that the Carson decision to buy or…

accounts just have about 3% interest rate which is lower than the investors’ expectations, and stocks and future goods are too risky for general investors even if they have high expect returns. As a result, investing in property is a good way among all methods and attracts investors in all over the world. Property can generate a flow of income, as well as a return of capital. People will invest in the property which could be preserved or increased in value or returns. It is a large asset class…