Question

a) ABC invested $100,000 in Amway shares. Other information as below: Company beta 1.5 Government Treasury bill 5% He seeks your advice on the value of share if the NYSE return is 30% during the year.

b) Ramli Bhd is expected to pay a RM0.50 dividend next year. The dividend is expected to grow at 30% annual rate for Year 2 and 3, at 20% annually for Year 4 and 5, and at 5% annual rate for Year 6 Thereafter. If the required rate of return is 10%, what is the value per share

Answer 1

a)

Beta of the company = 1.5

Change in NYSE return = 30%

Change in Amway return = beta * change in NYSE return = 1.5 * 30% = 45%

Initial investment = $ 100,000

Final value= Initial investment *(1+45%) = $ 145,000

b)

Value per share = RM 18.94

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