Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / The next dividend BHP is expected to pay a $3 dividend per share
The next dividend BHP is expected to pay a $3 dividend per share.
With a beta of 0.88, the All Ords returning 12% and government bonds yielding 2.5%, what is the value and implied price of the share?
Computation of Value and Implied price of the share:
Required Rate of Return = Risk free Rate + Beta*(Market Return - Risk free Rate)
Here,
Rsik free Rate = 2.5%
Beta = 0.88
Market Return = 12%
Required Rate of Return = 2.5%+0.88*(12%-2.5%)
= 2.5%+0.88* 9.5%
Required Rate of Return = 10.86%
Value of Share = Expected Dividend/Required Rate of Return = $3/10.86% = $27.62 per share
Implied Price of Share = Expected Dividend/(Required Rate of Return-Growth Rate)
As growth rate is not given in the question, we can't calculate implied price of share.
If we assume 5% growth rate then the answer will be as follows:
Implied Price of Share = $3/(10.86%-5%) = $51.19
