Question #02

a) An investor has analyzed a share for a one-year holding period. The share is currently selling for Tk. 80, but pays no dividends and there is a fifty-fifty chance that the share will sell for either Tk. 70 or Tk. 90 by the year end. The investor can borrow 50% margin from his bank at 10% per annum. (i) What is the expected return and risk if 100 shares are acquired and does not burrow? (i) What is the expected retum and risk if 200 shares are acquired with 80% borrowed funds?

b) ABC Ltd. paid a dividend of Tk 3 per share for the current year. A constant growth in dividend of 15% has been forecast for an indefinite future period. Investor's required rate of return has been estimated to be 20%. The current market price of the share is Tk. 80.

Would you buy the share? c) American Products Itd currently pays a dividend of Tk. 5 per share on its equity share. If the company plans to increase its dividend at the rate of 10 per cent per year indefinitely, what will be the dividend per share in 10 years? If the company's dividend per share is expected to be To. 8.50 per share at the end of five years, at what annual rate is the dividend expected to grow.