CFA CFA Level 1 Question of the Week – Equity Investments

Question of the Week – Equity Investments

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    • Avatar of shannondailyshannondaily
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        • Undecided
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        I don’t think this is right. 

      • Avatar of NaidenBNaidenB
        Participant
          • CFA Level 1
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          Actually its $32.63. Right?

        • Avatar of exam_whizexam_whiz
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            • Undecided
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            The answer is 24.58. Here is the calculation:

            Yr 1 Div: 1.25*1.25 = 1.56
            Yr 2 Div: 1.5625*1.25 = 1.95
            Yr 3 Div: 1.95*1.25 = 2.44
            Yr 4 Div: 2.44*1.03 = 2.51

            The trick is to value the stock at the end of yr 3 when there is level growth and add to the first 3 years worth of dividends.

            EOY 3 value= 2.51/(.12-.03) = 27.94

            PV = 1.56/1.12 + 1.95/1.12^2 + 2.44/1.12^3 + 27.94/1.12^3 = 24.58

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