Investment management

Differentiate between the following:

I.Growth companies and growth stock(4 marks)

II.Defensive companies and defensive stocks(4 marks)

III.Risk and diversification(4 marks)

IV.Fixed income instrument and capital market instrument(3 marks)

B.Stock XYZ declares a dividend of $2 per share and is currently valued at $125 in the market. Based on the stock's dividend history, a broker determines a dividend growth rate for the stock of 5% per year and a discount rate of 7%.

I.Calculate the stock current value(3 marks)

II.What would be your recommendation to investors holding this stock(2 marks)

C.Sea Gardens is a resort company with average risk. The industry average Price-earnings ratio (P/E) for resort companies is 13. If Sea Gardens has earnings per share (EPS) of $1.70, what would be a fair price for its shares?(5 marks)

D.Lynns Investments Limited does not currently pay dividends. However, investors expect that in five (5) years, the firm will pay its first dividend of $3.50 per share and will continue to grow at 10% in perpetuity. If investors require a 15% annual return on the shares, what should be the current price of Lynns Investments Limited shares to investors?(12 marks)