1. Dr Nii Quarshie, an investment analysis wants to use the Gordon growth model to find a justified P/E for a Ghanaian listed firm known as CA, a global food retailer specializing in hypermarkets and supermarkets. Dr Nii Quarshie has assembled the following information:

Current stock price = GH 47.46, Trailing annual earnings per share = GH 3.22, Current level of annual dividends= GH 1.03, Dividend growth rate= 7%. Risk-free rate = 4.4%, Equity risk premium= 6.39%, Beta=0.72

Required:

1. Calculate the justified trailing and leading P/Es based on the Gordon growth model. (4 Marks)
2. Based on the justified trailing P/E and the actual P/E, explain whether CA is fairly valued, overvalued or undervalue. (4 Marks)

2. You currently have $100000 invested in a portfolio that has an expected return of 12% and a volatility of 8%. Suppose the risk-free rate is 5% and there is another portfolio that has an expected return of 20% and a volatility of 12%.

1. What portfolio has a higher expected return that your portfolio but with the same volatility? (4 Marks)

What portfolio has a lower volatility than your portfolio but with the same expected return?