Bonga currently has a portfolio of ordinary shares representing several different companies. Bonga considers it to be a well-balanced investment portfolio, but he wants to reduce the overall risk of the portfolio a bit more by including ordinary shares from Titan Mining Corporation. The following information on Titan Mining Corporation is available: For the period 2017 to 2020, the company paid the following dividends per year respectively: R3,14; R3,55; R3,89; and R3,95. The 2021 dividend is expected to increase by the average growth rate of the dividends between 2017 and 2020, and the dividend will increase by 10% per year indefinitely from 2022 onwards. Bonga requires a return of 15% on his investment portfolio and is not prepared to pay more than R52,00 per ordinary share of Titan Mining Corporation.Calculate the current price of Titan Mining Corporation’s ordinary share.

Brand: MathMaster
Rating: 4.9 (238 reviews)

238

likes

1188 views

Answer to a math question Bonga currently has a portfolio of ordinary shares representing several different companies. Bonga considers it to be a well-balanced investment portfolio, but he wants to reduce the overall risk of the portfolio a bit more by including ordinary shares from Titan Mining Corporation. The following information on Titan Mining Corporation is available: For the period 2017 to 2020, the company paid the following dividends per year respectively: R3,14; R3,55; R3,89; and R3,95. The 2021 dividend is expected to increase by the average growth rate of the dividends between 2017 and 2020, and the dividend will increase by 10% per year indefinitely from 2022 onwards. Bonga requires a return of 15% on his investment portfolio and is not prepared to pay more than R52,00 per ordinary share of Titan Mining Corporation.Calculate the current price of Titan Mining Corporation’s ordinary share.

$Expert avatar$

Seamus

4.9

98 Answers

"To calculate the current price of Titan Mining Corporation's ordinary share, we can use the Dividend Discount Model (DDM), which is particularly useful for companies that pay dividends regularly. The formula for the price of a stock in this model is:

P = \frac{D_1}{r - g}

where:
-

is the current price of the stock.
-

D_1

is the expected dividend next year.
-

is the required rate of return.
-

is the expected growth rate of dividends.

### Step 1: Calculate the Average Growth Rate from 2017 to 2020

The growth rates for each year are as follows:
- From 2017 to 2018: 13.06%
- From 2018 to 2019: 9.58%
- From 2019 to 2020: 1.54%

The average annual growth rate over the period from 2017 to 2020 is approximately 8.06%.

### Step 2: Calculate

D_1

for 2021

Given the average growth rate obtained in Step 1, the dividend for 2021 (

D_1

) is calculated using:

D_1 = \text{Dividend}_{2020} \times (1 + \text{average growth rate})

### Step 3: Calculate the Price of the Stock Using DDM

Using a required return

r = 0.15

(15%) and a growth rate

g = 0.10

(10%) from 2022 onwards, the price of the stock is calculated as:

P = \frac{D_1}{0.15 - 0.10}

### Calculation Details

- Dividend for 2021 (

D_1

R4.27

- Price of the Stock Using DDM: Approximately

R85.37

\boxed{Current \ price = R85.37}

Frequently asked questions (FAQs)

Question: What is the limit as x approaches 4 of (x^2 + 5x - 14)/(x - 4)?

What are the characteristics of an ellipse function given by the equation (x-h)^2/a^2 + (y-k)^2/b^2 = 1, where (h,k) represents the center coordinates and a and b represent the semi-major and semi-minor axis lengths, respectively?

What is the smallest positive integer solution for the equation x^n + y^n = z^n when n>2? (Fermat’s Theorem)

New questions in Mathematics

calculate the derivative by the limit definition: f(x) = 6x^3 + 2

A hotel in the Algarve had to offer 1 week of vacation to one of its employees as an Easter gift in a random choice. It is known that 80 people work in this hotel unit, 41 of whom are Portuguese and 39 are foreign nationals. There are 14 Portuguese men and 23 foreign women. Using what you know about conditional probability, check the probability that the gift was offered to a Portuguese citizen, knowing that it was a woman.

*Question!!* *Victory saved 3,000 in first bank and 2,000 Naira in union bank PSC with interest rate of X% and Y% per annual respectively his total interest in one year is #640. If she has saved 2,000 naira with first bank and 3,000 naira in union bank for same period she would have made extra 20# as additional interest, then find the value of X and Y

Consider numbers from 1 to 2023. We want to delete 3 consecutive, so that the avarage of the left numbers is a whole number. How do we do that

224 × (6÷8)

Emma is on a 50 m high bridge and sees two boats anchored below. From her position, boat A has a bearing of 230° and boat B has a bearing of 120°. Emma estimates the angles of depression to be about 38° for boat A and 35° for boat B. How far apart are the boats to the nearest meter?

The price per night of a suite at the Baglioni Hotel in Venice is 1896 euros, VAT included. The VAT in Italy is 25%. The hotel gets a return of 10% out of the price VAT included. b) What is the profit value made by the hotel for one

Nice's central library building is considered one of the most original in the world, as it is a mix between a sculpture and a work of habitable architecture. It was called La Tête Carrée and is made up of part of a bust that supports a cube divided into five floors. It is known that the building has a total height of approximately 30 meters. It admits that the cubic part of the sculpture is parallel to the floor and has a volume of 2744 meters3 Calculate, in meters, the height of the bust that supports the cube. Displays all the calculations you made.

The sick-leave time of employees in a firm in a month is normally with a mean of 100 hours and a standard deviation of 20 hours. Find the probability that the sick-leave time of an employee in a month exceeds 130 hours.

Calculate the difference between 407 and 27