Stock Markets Exposed
Stock Valuation Question. Please help?
Swinton Mining has seen its business slowly winding down. It recenty paid a dividend of $1.80 per share, but analysts expect the dividend to decrease by 4% per year. If Swinton's required rate is 9.5%, what is the value of the stock? A. 15.34 B. 12.80 C. 14.55 D. 10.92 E. 11.79 What is Swinton Mining's current dividend yield? A. 12.50% B. 13.50% C. 11.50% D. 15.00% E. 14.00% You would expect S.M.'s dividend yield to (Increase, Decrease, or Stay the same) over time? What is S.M.'s expected stock price in one year? A. 12.29 B. 13.55 C. 11.20 D. 12.76 E. 10.26 S.M. is a negative growth stock - it's dividend is declining each year, and so is its stock price. Would a rational investor even consider investing in S.M.? If you could list the appropriate steps, I would be quite appreciative. Thank you.
Public Comments
- If you would like to include the current strike price it would make it easier to evaluate, DUH?
- P0 = D0(1+g)/(R-g) = 1.80(1+(-.04))/(.095-(-.04)) = 1.728 / .135 = 12.80 Div Yld = 1.80 / 12.80 = 14.06% Stays the same over time, stock price decreasing at same rate as dividends P1 = D1(1+g)/(R-g) = 1.728(.96)/(.135) = 12.29 No point in investing in it
