CFA CFA Level 2 help to solve problem alternative investment

help to solve problem alternative investment

  • This topic has 5 replies, 4 voices, and was last updated Oct-17 by conquer.
  • Author
    Posts
    • conquer
      Participant
      Up
      0
      Down

      alt investment. Publicly traded sec…prob. 12 pg134…they have used simple ddm but in calculation of terminal value they have used (r-rf) in denominator instead of (r-g).am I missing something? thanks

    • Sophie Macon
      Keymaster
      Up
      3
      Down

      Hi @conquer‌ – to make sure everyone in the community can help, it’s best that you write out the full question (or in a picture) so we’re all on the same page? I certainly don’t have access any more to CFAI books

    • conquer
      Participant
      Up
      2
      Down

      rf 4%
      beta 0.9
      market risk premium 5%
      disc rate 8.50%

      div one year from today 1
      div 2 year from today 1.06
      g in dividends long term 5%

      using 2 step ddm find intrinsic value of reit
      per share

      options are 26.72
      27.59
      28.83

      thanks

    • vincentt
      Participant
      Up
      5
      Down

      Based on the normal DDM it should use g but then again I’m sure level 2 questions would be in a vignette which might provide some clues that you may have missed that. It’s best if you can provide the vignette, type it out or take a picture of it upload it to your dropbox and link it here.

    • peekabooitsme
      Participant
      Up
      3
      Down

      They use (r-g).

      Just doing this in step: the dividend is discounted back (1/1.085) +(1.06/1.085^2) = 1.8204

      To calculate the terminal value at you you take the future dividend divided by r-g:
      (1.06 x 1.05)/(0.085-0.05) = 37.10 which is discounted back 2 year 37.10/(1.08^2) = 27.01

      Add total discounted cf: 1.8204 + 27.01 = 28.83

    • conquer
      Participant
      Up
      4
      Down

      thanks sophie,peekabooitsme and Vincent.i missed some details. Thanks for clarification.

Viewing 5 reply threads
  • You must be logged in to reply to this topic.