You would like to use CAPM and dividend discount model (DDM) to calculate the current theoretical...

Transcribed Image Text:

You would like to use CAPM and dividend discount model (DDM) to calculate the current theoretical stock price of GREAT Ltd. Given the following information: (i) the risk-free interest rate is 6% p.a. the expected return of market, E[RM]=11% p.a. the market beta of stock GREAT Ltd. = 0.8 (iii) The dividend payment from GREAT Ltd. has the following pattern: [1] the company will not pay any dividend to stockholders in next five years; at the end of the sixth year, the company will pay cash dividend $1 per share; from the end of the sixth year, the company will continue to pay cash dividends at a constant growth rate 5% p.a. [2] [3] Calculate the theoretical stock price for GREAT Ltd. now. (10%) An investor just purchased 10,000 shares of LITTLE Ltd. common stock on margin at the initial purchase price of $190 per share. Given that (i) the initial margin is 50%; and (ii) the maintenance margin is 30%, (iii) the stock pays no dividend; (vi) you can ignore any interest on margin. What stock price level would induce you to get a margin call? (10%) You would like to use CAPM and dividend discount model (DDM) to calculate the current theoretical stock price of GREAT Ltd. Given the following information: (i) the risk-free interest rate is 6% p.a. the expected return of market, E[RM]=11% p.a. the market beta of stock GREAT Ltd. = 0.8 (iii) The dividend payment from GREAT Ltd. has the following pattern: [1] the company will not pay any dividend to stockholders in next five years; at the end of the sixth year, the company will pay cash dividend $1 per share; from the end of the sixth year, the company will continue to pay cash dividends at a constant growth rate 5% p.a. [2] [3] Calculate the theoretical stock price for GREAT Ltd. now. (10%) An investor just purchased 10,000 shares of LITTLE Ltd. common stock on margin at the initial purchase price of $190 per share. Given that (i) the initial margin is 50%; and (ii) the maintenance margin is 30%, (iii) the stock pays no dividend; (vi) you can ignore any interest on margin. What stock price level would induce you to get a margin call? (10%)

Answer rating: 100% (QA)

For GREAT Ltd Using CAPM First calculate the required return R Rf beta ERm Rf R 006 08 011 006 R 010 ... View the full answer