Assume you are at the beginning of the current year and have received an inheritance of AUD$500,000 which must be invested in shares and you are considering buying |shares of Commonwealth Bank of Australia (ASX: CBA) Assume the yield on a 10-year government bond is 2.5% and the long-run return of the All Ordinaries is 8%. Also dividends are paid at the end of each year. a. Using the following information fill up the table. CBA $80.200 - $1.010 (1.28%) COMMONWEALTH BANK. FPO Add to Watchlist | Add to Alerts Change in price since previous close T Share Quote Discuss in Community Trades Value ($) Open ($) Previous Close ($) Bid ($) Offer ($) High ($) Low ($) Volume 80.190 80.210 80.350 79.460 729,771 6,090 58,351,089 79.500 79.190 Earnings and Dividends (cents per share) Current year (forecast) Last year Next year (forecast) 573.4 586.9 Earnings per share 556.4 (EPS) 429.0 434.8 440.2 Dividends per share (DPS) Risk CBA Banking Sector Beta 1.14 1.36 CBA Capital gain yield per year ( assuming a share was bought at the low price during the day and sold at the high price) Last year dividend yield (using the latest share price) Current year P/E ratio (using the latest share price) Beta E(Ri) 303 13 c. b. Given the result in the table, assume no growth in dividends calculate the value (implied price) of a CBA share. c. Calculate the implied growth rate of dividends p.a. for CBA using the dividend forecasted for next year and the dividend paid last year. d. Assuming CBA paid forecasted dividends in the current and next year and after that dividends are growing at the constant rate calculated in part c forever, what is the value today/implied price of a CBA share e. Would you buy CBA shares given the results in part b & d? Assume you are at the beginning of the current year and have received an inheritance of AUD$500,000 which must be invested in shares and you are considering buying |shares of Commonwealth Bank of Australia (ASX: CBA) Assume the yield on a 10-year government bond is 2.5% and the long-run return of the All Ordinaries is 8%. Also dividends are paid at the end of each year. a. Using the following information fill up the table. CBA $80.200 - $1.010 (1.28%) COMMONWEALTH BANK. FPO Add to Watchlist | Add to Alerts Change in price since previous close T Share Quote Discuss in Community Trades Value ($) Open ($) Previous Close ($) Bid ($) Offer ($) High ($) Low ($) Volume 80.190 80.210 80.350 79.460 729,771 6,090 58,351,089 79.500 79.190 Earnings and Dividends (cents per share) Current year (forecast) Last year Next year (forecast) 573.4 586.9 Earnings per share 556.4 (EPS) 429.0 434.8 440.2 Dividends per share (DPS) Risk CBA Banking Sector Beta 1.14 1.36 CBA Capital gain yield per year ( assuming a share was bought at the low price during the day and sold at the high price) Last year dividend yield (using the latest share price) Current year P/E ratio (using the latest share price) Beta E(Ri) 303 13 c. b. Given the result in the table, assume no growth in dividends calculate the value (implied price) of a CBA share. c. Calculate the implied growth rate of dividends p.a. for CBA using the dividend forecasted for next year and the dividend paid last year. d. Assuming CBA paid forecasted dividends in the current and next year and after that dividends are growing at the constant rate calculated in part c forever, what is the value today/implied price of a CBA share e. Would you buy CBA shares given the results in part b & d
