Applilcaio How Low Can It Go? Dwayne sat at his desk wondering what he should do
ID: 2817957 • Letter: A
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Applilcaio How Low Can It Go? Dwayne sat at his desk wondering what he should do. Having opted for early retirement, six months ago, he knew that he needed t make some changes in the way his investment portfolio was structured. However, being primarily focused on science during his career, he had a fairly limited knowledge of stock selection and portfolio management. One thing was certain, though, Dwayne had an eagerness to learn and that's exactly what he planned to do during his appointment with his broker, Jonathan Price. Dwayne Stevenson, aged 58, had joined the Pharmacopia Company approximately thirty years ago, as a post-doctoral researcher in the field of immunology. His strong work ethic and knowledge of science enabled him to progress steadily along the research track of the company. He won a number of awards and earned many promotions along the way Five years ago, Dwayne earned the coveted title of "Research 5 Scientist enjoyed b y only 4 other individuals in the corporation. One of the mainExplanation / Answer
Answer 2
Growth rate = Present value-Past value/Past value
1996 Growth rate = 3,200-3,000 = 200
200/3,000 = 0.07
1997 Growth rate = 4,000-3,200 = 800
800/3,200 = 0.25
1998 Growth Rtae = 4,400-4,000=400
400/4,400 = 0.1
1999 Growth Rate = 4,800-4,400 + 400
400/4,400 = 0.0909
2000 Growth Rate = 5,000-4,800=200
200-4,800 = 0.0416
2001 Growth rate = 5,200-5,000=200
200/5,000 = 0.04
2002 Growth rate =5,200-5,000 = 200
200/5,000 = 0.064
2003 Growth Rate = 4,900-5,100= -200
-200/5,100 = -0.0392
2004 Growth rate = 4,700-4,900 =-200
-200/4,900 = -0.05
Answer 3
We want calculate Required rate of return first we want calculate Return through CAPM (Capital Assey pricing model)
CAPM formula is E(R) = Rf=B(R market-Rf)
10% +1.1(9%-10%) =20.1
Using the capital asset pricing model, the expected return stock is 20.1.
Answer 4
In order to use the model , investors mustaccomplish a few things,
A. Approximate future dividend payments
B. Determina a discount rate for future payments
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