Question

1. Explain why we should use spreadsheet to value dividend growth model
2. Identify the firm you plan to analyze (choose a company that pays dividend, either in China or US).
   1. Download the dividend history (quarterly convert to annual).
   2. Use basic methods to predict dividend growth rate.
   3. Use CAPM to calculate the required rate of return (or any other method you talked in last chapter).
   4. Use those dividends to calculate the price of that equity using excel.

Answer 1

1)Dividend growth model is a model for valuation, it calculates the actual fair value of stock, it helps in identifying the dividend grows at a stable rate in order or at a fluctuating different rate for the selected period of time, It helps to identify the stock is under valued or overvalued at assuming growth rate

Spreadsheet is a very convenient and a feasible option while we take the whole lot of data of companies

2)a) AAPL(Nasdaq) Dividend history

0.77%- Quarterly

0.82 $ Annual dividend

b) Equation: P=D1/(k-g)

Where

P=Per share of the equity fair value

D=Dividend expected per share after one year from present

g=Dividend growth rate expected

k=required rate of return

c)CAPM(Capital Asset Pricing Model describes the connection between expected return and risk of investment is a security, it helps to analyze the risk involved in investment, expected return on equity is same to the risk fee return plus a risk premium, based on beta of that security

Ra=Rrf+[Ba*(Rm-Rrf)]

Where:

Ra=Expected return security

Rrf=Risk-free return

Ba=Beta Security

Rm=Expected market return

Risk Premium=(Rm-Rrf)