Security Analysis

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4. During the period 1970-2017, earnings of the S\&P 500 Index companies have increased at an average rate of 8.18% per year and the dividends paid have increased at an average rate of 5.9% per year. Assume that - Dividends will continue to grow at the 19702017 rate. - The required return on the index is 8%. - Companies in the S\&P 500 Index collectively paid $27.73 billion in dividends in 2017. Estimate the aggregate value of the S\& P500 Index component companies at the beginning of 2018 using the Gordon growth model. 5. You are analyzing the stock of Ansell Limited (Australian Stock Exchange: ANN), a health care company, as of late June 2008. The stock price is A\$9.74. The company's dividend per share for the fiscal year ending 31 June 2008 was AS0.27. You expect the dividend to increase by 10% for the next three years and then increase by 8% per year forever. You estimate the required return on equity of Ansell Limited to be 12%. a) Estimate the value of ANN using a two-stage dividend discount model. b) Calculate the margin of safety (MOS) for investing in AAA. c) Judge whether ANN is undervalued, fairly valued, or overvalued