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(a) Explain, using examples, the difference between a ‘top-down’ approach and a ‘bottom-up’ approach to equity valuation.

(b) There are four principles that underlie the concept of efficient markets. Outline, using examples, each principle.

(c) Write out the formula for the constant growth dividend valuation model. What key assumptions are required?

(d) You are interested in buying a share that paid its last annual dividend 9 months ago. You can assume that the next dividend payment (3 months from today) will be €1.50. The company anticipates that dividend growth rates will be 5% annually for the next two dividends and 2% thereafter. Assuming the firm’s cost of equity rE is 9%, how much should you pay for the share?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M93052912

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