Page 169 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes 14. An investor holds an equity share giving him an annual dividend of 30. He expects to
sell the share for 300 at the end of a year. Calculate the value of the share if the required
rate of return is 10%.
15. Ravi equity share currently sells for 23 per share. The company's finance manager
anticipates a constant growth rate of 10.5% and an end-of-year dividend of 2.50.

(a) What is the expected rate of return?
(b) If the investor requires a 17% return, should he purchase the stock?
16. Firms A, B and C are similar. Firm A is the most progressive and trades at a 18/1 P/E
multiple. Firm B is less progressive, is not publicly traded, and has an EPS of 1.20. Firm
C is least progressive and trades at a 15/1 P/E ratio. What is the intrinsic value of firm B?
17. Companies R, S and T are similar. Company R is privately held, and has a book value of
40 per share. Company S has a market price of 15 and a book value of 12. Company
T has a market value (MV) of 82 and a book value of 62. What is a possible value for
Company R?

Answers: Self Assessment

1. False 2. False
3. True 4. False

5. True 6. False
7. True 8. False
9. True 10. False
11. False 12. True
13. True 14. True

15. False

5.9 Further Readings

Books Gupta, S.N., Bonds and Guarantees, Delhi, Commercial Law Publications, 1981.
Helliwell, J.B.(ed.), Aggregate investment: selected readings, Harmondsworth, Penguin
Education, 1976.
Henin, Claude G. and Ryan, Peter J., Options: theory and practice, Lexington,
Lexington Books, 1977.

Sudhindhra Bhatt., Security Analysis and Portfolio Management, Excel Books.

Online links www.audioenglish.net
www.highbeam.com

www.investorwords.com

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