Using the one-year holding period and multiple-year holding period dividend discount model (DDM), calculate the change in value of the stock of Monster Burger Place under the following scenarios. First, assume that an investor holds the stock for only one year. Second, assume that the investor intends to hold the stock for two years. Information on the stock is as follows:
Last year's dividend was $2.50 per share.
Dividends are projected to grow at a rate of 10.0% for each of the next two years.
Estimated stock price at the end of year 1 is $25 and at the end of year 2 is $30.
Nominal risk-free rate is 4.5%.
The required market return is 10.0%.
Beta is estimated at 1.0.
The value of the stock if held for one year and the value if held for two years are:
Year one Year two（）
①A. $25.22 $35.25
②B. $27.50 $35.25
③C. $25.22 $29.80
A. ①
B. ②
C. ③
参考答案：C
解析：
ke = Rf+Beta×(Rm-Rf)=4.5%+1×(10.0%-4.5%)=4.5%+5.5%=10.0%.
D1=D0×(1+g)=2.50×1.10=2.75
D2=D1×(1+g)=2.75×1.10=3.03
Use DDM to calculate the present value of the expected stock cash flows ( assuming the one-year hold ).
P0=[D1/(1+ke)]+[P1/(1+ke)]=[$2.75/1.10]+[$25.0/1.10]=$25.22.
Use the multi-period DDM to calculate the return for the stock if held for two years.
P0=[D1/(1+k)]+[D2/(1+ke)2]+[P2/(1+ke)2]=[$2.75/1.10]+[$3.03/1.102]+[$30.0/1.102]=$29.80.