Question 22 (10 points) (10 marks) ABC Corp has an expected return on equity of 15%. It just paid a dividend of $10 and is currently selling for $100. In one year's time, the consensus forecast is that it is expected to sell for $100; i.e. P1 = 100. a. (3 marks) What is the implied value of the dividend at the end of the year; i.e. Di? What is the corresponding growth rate of dividends, denoted it 81, over the year? Using the Gordon dividend discount model, you find that an implied constant growth rate of dividends of 8 = 0, from year 1 onwards, is consistent with P1 = 100. b. (2 mark) Show your calculations. News announcement: the government bond yield curve has just shifted and now implies that expected short rates starting next year are expected to fall from 3% to 2%. c. (3 mark) Holding the risk premium on ABC stock constant, what is the new expected return on equity? Without calculation, what does that imply for the forecast for Pi? and make a d. (2 mark) Is it possible to use the announcement to either sell and avoid a loss or buy profit, according to the Efficient Market Hypothesis? Question 22 (10 points) (10 marks) ABC Corp has an expected return on equity of 15%. It just paid a dividend of $10 and is currently selling for $100. In one year's time, the consensus forecast is that it is expected to sell for $100; i.e. P1 = 100. a. (3 marks) What is the implied value of the dividend at the end of the year; i.e. Di? What is the corresponding growth rate of dividends, denoted it 81, over the year? Using the Gordon dividend discount model, you find that an implied constant growth rate of dividends of 8 = 0, from year 1 onwards, is consistent with P1 = 100. b. (2 mark) Show your calculations. News announcement: the government bond yield curve has just shifted and now implies that expected short rates starting next year are expected to fall from 3% to 2%. c. (3 mark) Holding the risk premium on ABC stock constant, what is the new expected return on equity? Without calculation, what does that imply for the forecast for Pi? and make a d. (2 mark) Is it possible to use the announcement to either sell and avoid a loss or buy profit, according to the Efficient Market Hypothesis