1. A share in IM will pay a dividend of 1.20 and has a current market price greater than 20. You also know that the expected return on the share is 8%.

(i) Using DDM Model explain why this means that the dividend cannot be constant at 1.20 per share.

(ii) You then discover that the dividend paid by IM will increase by 4% each year. Calculate the intrinsic value of a share in IM.

(iii) If the dividend growth changed from 4% to 2% what would happen to the intrinsic value of the share in IM?

(b) It is now Dec 2020 and AJW Limited has just paid a dividend of 1.00. Dividends will increase by 6% for the next four years and then the growth rate will reduce to 2%.

The risk-free rate is 1%, the expected market return is 7% and the beta of AJW Limited according to Bloomberg is 1.2

(i) Calculate the expected return on a share in AJW Limited

(ii) Calculate the intrinsic value of a share in AJW Limited