$10$:$07$

FNCE$\_$ECON$300$v$3\_$Assign$2.$do$...$

$7\mathrm{.}3$ Note: Each of the following question parts is independent. You are required to complete part $a.$ Part b is not required, but you can earn up to $20$ bonus marks for completing it correctly. However, your total assignment mark cannot exceed $170($the maximum marks for the entire assignment$).$

a$.$ Your investment in E$.$ Wang Fincorp Ltd$.$ just paid a dividend of $$6\mathrm{.}50$ per share. You have been pleased with the $15\%$ return you have earned on this stock, and you expect it to continue at this rate indefinitely. Today's price is $$157\mathrm{.}00.$ What growth rate do you expect for future dividends?

$(4$ marks$)$

b$.$ An investment in shares of Capital Home Group Ltd$.$ just paid a dividend of $$1$ per share after the company announced a technological breakthrough. As a result, management expects the firm to grow dividends rapidly for five years at a growth rate of $20\%,$ and then, as competitors catch up$,$ they anticipate a $5\%$ reduction in growth every year until the firm plateaus at a growth rate of $5\%,$ which they expect to maintain indefinitely thereafter. A $15\%$ return is acceptable to you, so you want to calculate your expected price for the firm's shares:

i$.$ Now, at time $0(12$ marks; bonus$)$

ii$.$ Five years from now, when the $20\%$ rapid growth is finished

$(4$ marks; bonus$)$

iii. Seven years from now, when growth is constant at $5\%$

$(4$ marks; bonus$)$

$8\mathrm{.}1(25$ marks total$)$

a$.$ Identify the current composition of the Dow Jones Industrial Average $($DJIA$),$ a price$-$weighted index. List the stocks included, the exchange on which they are currently listed, and their ticker symbols. marks$)$

b$.$ Prepare a mini$-$Dow price index from a subset of the DJIA stocks using the following instructions:

Get stock price data $($e$.$g$.,$ the daily closing price$)$ from a site like

finance.yahoo.com for $10$ stocks in the DJIA. Record the prices for the prior $10$ trading days, and use these prices to compute a price$-$weighted index for each of these $10$ days by adding up the prices of your $10$ stocks each day.

$(10$ marks$)$

Also record the closing value of the DJIA for the same