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06 Activity 1

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30 views

06 Activity 1

Uploaded by

Queene Buscaya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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NAME:

BM2004

DATE: SCORE:

I. PARTICIPANTS IN THE EQUITY MARKET (15 points: 3 items x 5 points)


In no more than five (5) sentences, explain the participation of the following institutions in the equity
markets, and cite at least one (1) activity that they may conduct on it.

a. Commercial Banks

b. Securities Firms

c. Pension Funds

II. EQUITY VALUATION (15 points: 3 items x 5 points)


Read the problems and solve for what is asked in each problem. Write the complete solution.

1. Alejandria Madriaga wants to buy shares from Velasco Company. The shares of Velasco Company
are traded in the Small, Medium, and Emerging (SME) Board of the Philippine Stock Exchange (PSE).
Based on publicly available information, Alejandria compiled the following dividends of Velasco
Company for the past three (3) years.

Year Dividend per Share


2019 2.70
2018 2.38
2017 2.22

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BM2004

Based on the above information, Alejandria believes that the historical annual growth rate of
dividends is a good indicator of the future constant growth rate of dividends. Alejandria requires a
16% return on all her investments. What is the current market price of the share?

2. Simbillo Company is contemplating whether to buy shares of one of the leading network companies
in the country, the Khan Company. Khan recently paid dividends of P8 per share. Simbillo hired an
investment analyst on the dividend of Khan. They estimated that the dividends may grow at a 5%
annual rate for the next four (4) years. At the end of the fourth year, it is expected that the market
will only lead to a constant 4% dividend growth rate in the foreseeable future. Simbillo uses a 12%
required return in evaluating its investments. What is the value per share of Khan Company?

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3. Carol Corporation assesses the viability of the investment in YRock Corporation. Carol expects to
hold its investments for three (3) years and sell it after the holding period.

The investment analyst of Carol forecasted that YRock Corporation will pay dividends of P4 in the
first year, P5 in the second year, and P5.25 in the third year. The analyst also expects that at the end
of the third year, the selling price of the company’s stock will be at P300 per share. The estimated
cost of capital is 6%. The current stock price is P200 per share. What is the value of the shares?

Rubric for grading the computation:


CRITERIA POINTS
Complete solution with the correct answer 5
The last two (2) major steps of the solution are incorrect 4
Half of the solution is correct 3
The first two (2) major steps of the solution are correct 2
The first major step of the solution is correct 1

Rubric for grading the essay:


CRITERIA PERFORMANCE INDICATORS POINTS
Content The answer is based on underlying financial and economic principles 3
and is supported by real-life examples.
Organization The answer is concise, well-organized, and direct to the point. 2
of Ideas
Total 5

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