FIN428 Portfolio Management Individual Assignment
Order ID | 9003296906 |
Subject | Portfolio Management |
Topic | Portfolio Management |
Type | Questions-Answers |
Level | University |
Style | APA |
Sources | 0 |
Language | English(U.S.) |
Description |
check the practice to solve section 1
Mid-Term Individual Assignment Portfolio Management FIN428 Mid-Term Individual Assignment must be completed individually. This assignment is due on April 9, 2020 (Thursday) at 3pm. A 50% penalty will be incurred for each business day the assignment is late. This assignment must be submitted electronically via Blackboard (Instructor’s Assessments). Tasks:
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SECTION 1 (60 marks) Note:
QUESTION 1 Tri-coat Paints’ stock has a current market value of $50 per share with an expected earnings per share of $3.64 next year. Instructions What should be the present value of its growth opportunities (PVGO) if the required return is 9%? Assume that there is no mispricing. QUESTION 2 The market consensus is that Analog Electronic Corporation has an ROE of 9%, has a beta of the stock of 1.30, and plans to maintain indefinitely its traditional plowback ratio of 1/3. The latest earnings were $2.90 per share. The annual dividend was just paid. The consensus estimate of the coming year’s market return is 11%, and T-bills currently offer a 5% return. Instructions Find the price at which Analog stock should sell. QUESTION 3 The risk-free rate of return is 8.0%, the expected rate of return on the market portfolio is 20%, and the stock of Xyrong Corporation has a beta coefficient of 1.2. Xyrong pays out 60% of its earnings in dividends, and the latest earnings announced were $10.50 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 20% per year on all reinvested earnings forever. Instructions What is the intrinsic value of a share of Xyrong stock? QUESTION 4 The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next 5 years. Its latest EPS was $13, all of which was reinvested in the company. The firm’s expected ROE for the next 5 years is 17% per year, and during this time it is expected to continue to reinvest all of its earnings. Starting in year 6, the firm’s ROE on new investments is expected to fall to 12%, and the company is expected to start paying out 35% of its earnings in cash dividends, which it will continue to do forever after. DEQS’s market capitalization rate is 20% per year. Instructions What is your estimate of DEQS’s intrinsic value per share? QUESTION 5 The Bain Corporation’s dividend per share was $1.00 three years ago and grew at 2% a year until last year. The Bain Corporation will pay an annual dividend per share of $1.00 for year 1. The dividend growth rate will be 12 % a year for year 2 and year 3. Starting in year 4, the dividend will grow at 4 percent forever. The beta of Bain Corporation is 1.2 currently and it will be constant forever. The Bain Corporation’s ROE was 10% last year. Instructions If the required rate of return is 10 percent, what is the Bain stock’s current value per share? QUESTION 6 For the McGregor Company’s shareholders, the dividend per share for year 1 will be equal to the dividend per share for year 2. Starting in year 3, the dividend per share will grow at an annual rate of 5.1 percent forever. The expected return on the market portfolio is 14 percent. The risk-free rate is 4 percent. The risk premium required for the MacGregor stock is 8 percent. The current value per share of the MacGregor stock is $80. Instructions What is the dividend per share for year 1? SECTION 2 (40 marks) Instruction: Suppose that you are an equity analyst at a global investment bank. A client (James Harvey) has recently sent you the following email. From: James Harvey Sent: 31 March 2020 9:00 am To: [your name] Subject: Stock pricing Dear [your name], I would like to ask you a few questions related to stock pricing. I would greatly appreciate your help.
FIN428 Portfolio Management Individual James Harvey Answer James Harvey’s questions in a formal email to him. Please follow the instructions below:
FIN428 Portfolio Management Individual |
Spacing | Double |
Pages | 3 |
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