MathMaster logo

MathMaster

  1. Home
  2. general
  3. bonga currently has a portfolio of ordinary shares representing several different companies bonga considers it to be a wel
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.

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:
- P is the current price of the stock.
- D_1 is the expected dividend next year.
- r is the required rate of return.
- g 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)
Math question: What is the derivative of f(x) = 4x^3 - 2e^x + sin(x) at x = 2?
+
Math Question: How many right-angled triangles can be formed with whole number side lengths less than or equal to 10?
+
What is the surface area of a cuboid with length 10cm, width 5cm, and height 8cm?
+
New questions in Mathematics
Let f(x)=||x|−6|+|15−|x|| . Then f(6)+f(15) is equal to:
Find two natural numbers whose sum is 230 and their difference is 10. Set up the system and solve it.
(x^2+3x)/(x^2-9)=
If O(3,-2) is reflected across x = 2. What are the coordinates of O
3x+5y=11 2x-3y=1
Sean must chose a 6- digit PIN number for his online banking account.Each digit can be chosen from 0 to 9. How many different possible PIN numbers can sean chose.
A test has 5 multiple choice questions. Each question has 4 alternatives, only one of which is correct. A student who did not study for the test randomly chooses one alternative for each question.(a) What is the probability of him getting a zero on the test?(b) What is the probability of him getting a three or more? The maximum mark for the test is 5, with each question worth one point.
Calculate the minimum size of a simple random sample assuming a sampling error of 5% assuming that the population size is 100 elements
A mutual fund manager has a $350 million portfolio with a beta of 1.10. The risk-free rate is 3.5%, and the market risk premium is 6.00%. The manager expects to receive an additional $150 million which she plans to invest in several different stocks. After investing the additional funds, she wants to reduce the portfolio’s risk level so that once the additional funds are invested the portfolio’s required return will be 9.20%. What must the average beta of the new stocks added to the portfolio be (not the new portfolio’s beta) to achieve the desired required rate of return?
It is known that the content of milk that is actually in a bag distributes normally with an average of 900 grams and variance 25 square grams. Suppose that the cost in pesos of a bag of milk is given by 𝐶(𝑥) = { 3800 𝑠𝑖 𝑥 ≤ 890 4500 𝑠𝑖 𝑥 > 890 Find the expected cost.
Use a pattern approach to explain why (-2)(-3)=6
-1%2F2x-4%3D18
15.A newly married couple purchased a home with a $123710 down payment. They financed the remaining balance of the home with a mortgage. Their payments were $15395 at the end of every six months for 23 years and the interest rate was 10.6%, compounded semi-annually. How much did they purchase their home for. Enter to the nearest cent (two decimals). Do not use $ signs or commas in the answer.
A person runs 175 yards per minute write a variable that represents the relationship between time and distance
We plan to test whether the mean mRNA expression level differs between two strains of yeast, for each of 8,000 genes. We will measure the expression levels of each gene, in n samples of strain 1 and m samples of strain 2. We plan to compute a P-value for each gene, using an unpaired two-sample t-test for each gene (the particular type of test does not matter). a) What are the null hypotheses in these tests (in words)? [2] b) If, in fact, the two strains are identical, how many of these tests do we expect to produce a P-value exceeding 1/4? [2]
A post office has three categories of letters: 60% are from businesses, 30% are individual mail, and the remaining 10% are government mail. 5% of the letters from businesses have address errors, 10% of the individual mail has address errors, while 1% of the government mail has address errors. If we receive a letter with an address error, what is the probability that it is individual mail?"
1. The cost to transport 250 packages of cement 120 kilometers is $600. What will be the cost to transport 500 packages 300 kilometers?
To paint a 250 m wall, a number of workers were employed. If the wall were 30 m longer, 9 more workers would be needed. How many were employed at the beginning?
Recall that with base- ten blocks, 1 long = 10 units, 1flat = 10 long, and a block = 1 unit. Then what number does 5 flat, 17long and 5 units represent represent ?
Triangle ABC has AB=AC and angle BAC =X, with X being less than 60 degrees. Point D lies on AB such that CB = CD Point E lies on AC such that CE= DE Determine angle DEC in terms of X

You might be interested in