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kindly solve only b i and 11 QUESTION THREE (15 MARKS) a) Dr Nii Quarshie, an investment analysis wants to use the Gordon growth model
kindly solve only b i and 11
QUESTION THREE (15 MARKS) a) 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 = GH47.46, Trailing annual earnings per share= GH3.22, Current level of annual dividends=GH1.03, Dividend growth rate=7%. Risk-free rate=4.4%, Equity risk premium=6.39 %, Beta=0.72 Required: i) Calculate the justified trailing and leading P/Es based on the Gordon growth model. (4 Marks) ii) Based on the justified trailing P/E and the actual P/E, explain whether CA is fairly valued, overvalued, or undervalue. (4 Marks) b) You currently have $100,000 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%. i) What portfolio has a higher expected return than your portfolio but with the same volatility? (4 Marks) ii) What portfolio has a lower volatility than your portfolio but with the same expected return? (3 Marks) Total 15 marksStep by Step Solution
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