In: Finance
The returns on Amanda Ltd’s share over the past five years are reported in table below: Year Return 2016 6% 2017 -12% 2018 16% 2019 38% 2020 11% 6.1.1 Calculate the average return for on Amanda’s share over the five year. (2) 6.1.2 Calculate the variance and the standard deviation of Amanda’s return over this period. (8) 6.2 NEW HOPE stock is expecting a Return On Equity (ROE) of 12%, earnings per share (EPS) of $8 and dividends of $6 per share. NEW HOPE investors require a rate of return of 10%. Calculate NEW HOPE’s expected growth rate, its intrinsic value and P/E ratio. (10).Subject is Investment
Avg Ret = SUm [ Ret ] / n
Variance = Sum [ (X-Avg X)^2 ] / n
SD = SQRT [Sum [ (X-Avg X)^2 ] / n ]
Growth Rate = Retention Ratio * ROE
PE Ratio = MPS / EPS
MPS = D1 / ( Ke - g )
D1 = Expected Div after 1 Year
Ke = Required Ret
6.1.1:
Avg Ret = SUm [ Ret ] / n
= [ 6% - 12% + 16% + 38% + 11% ] / 5
= 59% / 5
= 11.8%
6.1.2
Variance:
Year | Ret | X-Avg X | (X-Avg X)^2 |
2016 | 6% | -0.058 | 0.0034 |
2017 | -12% | -0.238 | 0.0566 |
2018 | 16% | 0.042 | 0.0018 |
2019 | 38% | 0.262 | 0.0686 |
2020 | 11% | -0.008 | 0.0001 |
Sum [ (X-Avg X)^2 ] | 0.1305 | ||
Variance =Sum [ (X-Avg X)^2 ] /n | 0.0261 |
SD :
Year | Ret | X-Avg X | (X-Avg X)^2 |
2016 | 6% | -0.058 | 0.0034 |
2017 | -12% | -0.238 | 0.0566 |
2018 | 16% | 0.042 | 0.0018 |
2019 | 38% | 0.262 | 0.0686 |
2020 | 11% | -0.008 | 0.0001 |
Sum [ (X-Avg X)^2 ] | 0.1305 | ||
Variance =Sum [ (X-Avg X)^2 ] /n | 0.0261 | ||
SD = SQRT [ Variance ] | 0.1615 |
6,2:
Retention Ratio = [ EPS - DPS ] / EPS
= [ 8 - 6 ] / 8
= 2 / 8
= 0.25
Growth Rate = Retention Ratio * ROE
= 0.25 *12%
= 3%
D1 = D0 (1 + g )
= 6 ( 1 + 0.03)
= 6*1.03
= $ 6.18
MPS = D1 / [ Ke - g ]
= $ 6.18 / [ 10% - 3% ]
= $ 6.18 / 7%
= $ 88.29
PE Ratio:
= MPS / EPS
= 88.29 / 8
= 11.04 times