stocks dividends

 

earnings per share = earnings/no. of shares

dividends per share = eps if company gives 100% of its earnings

dps/eps

a) zero growth

value of a stock = dividend/share holder discount rate

                          == next period dividend/(rate of return-growth rate)

    eg:    $3/0.15 = $20

b) constant growth

dividend yield = next period dividend/price today

rate of return = divident yield + capital gain component

c) not constant

value of a stock = d1/(1+r)1  + d2/(1+r)2....   dt/(1+r)t 

  

stocks with no dividends

price earnings multiple 

quiz:

5) 

2/1.01  + 2/1.01 + 2/1.01

1.98  + 

2.74  + 3.37/1.345   + 25.2 + 2.5 

4) 

rate of return 10%

divident 2$

after 3 yrs

d1 = 0

d2 = 0

D3=2/0.10 = $20

value = 20/(1.1)3 = 15.

6) 

rate of return 16%

divident 3$

after 2 yrs

D1 = 3 * 1.06 = 3.18

D2 = 3 * 1.06*1.06 = 3.37

D3 = 3.37 * 1.03 = 3.47

value for constant growth = 3.47/0.16-0.03 = 26.692

price today = d1/1.16 + d2/(1.16)2 = 25.17

6) anw - 26.15

5) - 29.40

4) 18.18