Hi folks, I am going through some past year question papers and I need some help on DDM.
Bright Ltd (Bright) shares are now trading at $6.50 each. Last year’s EPS was $0.50, and Bright paid an annual dividend of $0.10 per share. For the next 5 years, earnings and dividends are expected to grow 15% per annum. Thereafter the growth is expected to fall to a constant 10% per annum. The required rate of return for the stock is 12%.
Compute the price-earnings ratio for the shares of Bright in Yeat 6.
A stock is now selling at $2.00. The next dividend will be $0.10 per share. You expect the dividends to grow by 10% yearly. What return does this share offer to you? What is the prospective dividend yield?
(Is prospective dividend yield P0/E1? And if so how do I calculate it?)
China Grove, Inc. will pay dividends for the next 10 years. The expected dividend growth rate for this firm is 6%, the discount rate is 13%, and the stock currently sells for $40 per share. How much must the most recent dividend payment have been?
(The final answer of $5.59 is shown in the answer sheet, but I do not know how to calculate it )
Im also confused on a DDM question from the blue boxes in the 2017 equity cfa1 book. An investor is expecting a share to pay div of 3$ and 3.15$ at the end of yr 1 and 2. At the end of the second year the investor expects the shares to trade at 40. The required rate of return on the shares is 8%. If the investors forecast are accurate and the current market price of the share is 30$, the most likely conclusion is that the shares are: a-overvalued b-undervalued c-fairly valued
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