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Financial system
3.
4. Shares= 10 mil $
Dividends= 1000 $/ share
C1=11.000 $ this value after a growth of 10% => c0=10.000 $ and Δc=1000 $
Δc+ Dividend
a) We need to obtain the shares yield: share yield=
c0
1000+ 1000
share yield= =20 %
10.000
Knowing that the interest rate in the economy was 18%, it means that buying the
shares was efficient because 20%>18%. If the person would have chosen to deposit
the money in a bank they would have only obtained 18% interest, in this case they
obtain 20%.
b) In this case the maximum value is 20%. If the interest rate is higher than 20%
(for example 21%) it would be more efficient to deposit the money and obtain
the interest- in the case of deposits the interest rate is the earning(so a potential
earning of 21%), while in the case of the shares; as calculated at a) the maximum
gain is 20%.
P 10.000
c) P . E . R .= = =10 years
I 1000
The time to recover the initial investment will be 10 years- as we know that for
the initial investment of 10.000 $, there is a yearly income of 1000 $
dividend
5. a) we need to obtain the dividends yield: dividend yield=
initial price
10 8 4
company A: =0,2 company B: =0,05 company C: =0,1
50 160 40
the best option would be company A , as it has the highest percentage : 20%
price
b) for each company we will calculate the price-to-earnings ratio ¿
dividend
50 160
company A: P.E.R.= =5 years company B: P.E.R.= =20 years
10 80
40
company C: P.E.R.= =10 years
4
c) in order to see which company would be more suitable for taking over we need to
calculate the net discounted value for each company where we will compare the
predicted earning with the initial investment( number of shares each company
released and at what price):NVD=DV −(nr . shares∗price)
the most suitable company to take over is company B as it has the maximum
value