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
97 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)
Find the integral of ∫(x^2 + 3x - 2) dx using the standard formula of integrals.
+
What is the derivative of f(x) = 4x^3 - 6x^2 + 2x - 1?
+
What is the equation to find the length of the perpendicular bisector of a triangle's side?
+
New questions in Mathematics
If we have the sequence: 3, 6, 12, 24 Please determine the 14th term.
Imagine that you are in an electronics store and you want to calculate the final price of a product after applying a discount. The product you are interested in has an original price of $1000 MN, but, for today, the store offers a 25% discount on all its products. Develop an algorithm that allows you to calculate the final price you will pay, but first point out the elements.
2x-y=5 x-y=4
The profit G of the company CHUNCHES SA is given by G(x) = 3×(40 – ×), where × is the quantity of items sold. Find the maximum profit.
*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
Using the integration by parts method, calculate the integral of [x².ln(1/x)]dx: x 4 /4 x³/6 x 4 /8 x³/3 x 4 /6
-3(-4x+5)=-6(7x-8)+9-10x
What is the appropriate measurement for the weight of an African elephant?
If 0101, what is the binary representation of the 4x16 decoder output?
Lim x → 0 (2x ^ 3 - 10x ^ 7) / 5 * x ^ 3 - 4x )=2
89, ÷ 10
7=-4/3y -1
How much does the average college student spend on food per month? A random sample of 50 college students showed a sample mean $670 with a standard deviation $80. Obtain the 95% confidence interval for the amount college students spend on food per month.
In a laboratory test, it was found that a certain culture of bacteria develops in a favorable environment, doubling its population every 2 hours. The test started with a population of 100 bacteria. After six hours, it is estimated that the number of bacteria will be:
During a month's time, an automobile sales person receives a 6% commission on the first $5000 in sales, a 7% commission on the next $5000 sales, 8% commission on anything over $10,000. What is her commission for $36,000 in sales?
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 confidence interval for a population mean has a margin of error of 3.5. a. Determine the length of the confidence interval. b. If the sample mean is 47.8 ​, obtain the confidence interval. a. The length of the confidence interval is?
A candy manufacturer must monitor deviations in the amount of sugar in their products They want their products to meet standards. They selected a random sample of 20 candies and found that the sandard deviation of that sample is 1.7. What is the probabilty of finding a sample variance as high or higher if the population variance is actually 3277 Assume the population distribution is normal.
For how long does the principal amount of €7,537 bring the same interest as the principal amount of €12,345 invested for 8 months? Interest calculation is simple and decursive.
Kayla started a book club at her school. The number of girls in the book club was one more than twice the number of boys. If there are 15 girls in the book club, how many boys are in the club?