Section A

1. Use relative valuation model and:

a) Find the share price of one company from your active portfolio. You are advised to make use of five
comparable companies available in the Google Finance page inside the tab compare. P/E ratio can be
found either from google finance or from Bloomberg.
b) check the share price obtained and compare it with the market price

2. Download dividend data for selected companies of your active portfolio for last five-year period (start from
2015).
a) Create line charts for the dividend paid data for each company separately. Using the chart and the
dividend paid data, discuss growth rate in dividend among the companies.

Note: See Excel File attached for a more comprehensive view of the answer

Dividend Payments - MSFT

$2.00
$1.80
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
12/31/2019 12/31/2018 12/31/2017 12/31/2016 12/31/2015

Interpretation:
As seen from the graph above, the reported dividend payments increased from $1.29 in 2015 to $1.89 in 2019 for Microsoft
stock.
The growth rate in dividend payment in 2020 relative to 2015 is 47%.
During the period of 2015 to 2016, the dividend payments increased by 14%.
Furthermore, an increase in dividend payments by an equal rate of 8% was witnessed from 2016 to 2017 and from 2017 to
2018, and a rate of 10% from 2018 to 2019.
However, it has to be noted that during the period of 2016 to 2017 and 2017 to 2018, dividends increased at a decreasing rate.
 Dividend Payment - Apple Inc.
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
12/31/2019 12/31/2018 12/31/2017 12/31/2016 12/31/2015

Interpretation:
As seen from the graph above, the reported dividend payments increased from $2.03 in 2015 to $2.23 in 2019 for
Apple stock.
The growth rate in dividend payment in 2020 relative to 2015 is 50%.
During the period of 2015 to 2016 and 2016 to 2017, the dividend payments increased by 10%.
Furthermore, an increase in dividend payments by a rate of 15% was witnessed from 2017 to 2018, and a rate of
8% from 2018 to 2019.
However, it has to be noted that during the period of 2018 to 2019, dividends increased at a decreasing rate.

Dividend Payments - WTM

$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
3/15/2019 3/16/2018 3/16/2017 3/17/2016 3/12/2015

Interpretation:
As seen from the graph above, dividend payments by White
Mountain insurance group has a growth rate of 0%. Dividend payments are constant and have not
increased since 2015 to 2019.
 Dividend Payments - PFE
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
12/31/2019 12/31/2018 12/31/2017 12/31/2016 12/31/2015

Interpretation:
As seen from the graph above, the reported dividend payments increased from $1.12 in 2015 to $1.44 in 2019 for
Microsoft stock.
The growth rate in dividend payment in 2020 relative to 2015 is 29%.
During the period of 2015 to 2016 and 2016 to 2017, the dividend payments increased by 7%.
Furthermore, an increase in dividend payments by an equal rate of 6% was witnessed from 2017 to 2018 and 2018
to 2019.
However, it has to be noted that since 2017 to 2019, dividends increased at a decreasing rate.

b) Next obtain other data namely Market Share price, Beta, Market Return, Treasury Bill Yield.
c) Find out CAPM given return.

2019 (Share Price on

2.b)Stock 31/12/2019) Beta
Microsoft 157.59 0.8
Apple 72.88 1.22
White Mountain Insurance 1118.44 0.51
Pfizer 36.92 0.69

Equity Risk Premium - US - 2019 (rm -

rf) 5.20%
3 month treasury bill rate (2019) (rf) 1.55%

2.c CAPM = RF+B(rm-rf)

CAPM (K) - Microsoft 5.71%
CAPM (K) - Apple 7.89%
CAPM (K) - White Mountain Insurance 4.20%
CAPM (K) - Pfizer 5.14%
d) Define the growth rate of dividend for all four companies. Find out last year dividend for all
companies.

1. Microsoft: Microsoft stock dividends follow a variable growth pattern over the years. In year 2016
dividend growth was 14% as compared to 2015 dividends. In 2017 and 2018, the dividends grew at a
constant growth rate of 8%. In 2019, the growth rate increased to 10%.

2019 Dividend: $1.89

2. Apple: Apple stock dividends follow a variable growth pattern over the years. In year 2016 and 2017,
the dividends grew at a constant growth rate of 10%. In 2018, the growth rate increased to 15%, while
in 2019, the growth rate declined to 8%.

2019 Dividend: $3.04

3. White Mountains Insurance Group: WTM Dividends follow a no-growth pattern. The dividends paid
are constant at a rate of $1.00 for the period 2015-2019.

2019 Dividend: $1.00

4. Pfizer: Pfizer dividends follow a variable growth pattern. In 2016 and 2017, dividends grew at
constant average rate of 7%, while in 2018 and 2019; dividends grew at a constant average rate of 6%.

2019 Dividend: $1.44

e) Find out dividend growth rate for all four companies. In case of non-constant dividend growth
company, find the constant growth rate. Using growth rate and last year total dividend, find out next
year dividend for all four companies
Note: See Excel File attached for a more comprehensive view of the answer

f) Finally, find the stock price of all companies using the appropriate formulas and compare with the
market price.
Note: See Excel File attached for a more comprehensive view of the answer