CFA CFA Level 2 help to solve problem alternative investment

# help to solve problem alternative investment

• Author
Posts
• 0

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

• vincentt
Participant
• CFA Level 3
5

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.

• 4

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

• 3

Hi @conquerâ€Œ – 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

• peekabooitsme
Participant
• CFA Level 3
3

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

• 2

rf 4%
beta 0.9
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