Homework about Investment ,due day is tomorrow morning

1. ;Homework ;

S&P ;500 ;Valuation ;(CH ;12)

Download ;Excel ;file ;sp-500-eps-est.

P/E ;Multiple

a. ;Let’s ;use ;the ;analyst’s ;estimate ;of ;2015 ;operating ;earnings ;of ;$118.59 ;in ;the ;Estimates&PEs ;tab.

b. ;On ;the ;Quarterly ;Data ;tab, ;forecast ;the ;dividend ;payout ;ratio ;for ;the ;historical ;time ;series.

c. ;On ;the ;Quarterly ;Data ;tab, ;forecast ;the ;dividend ;yield ;for ;the ;historical ;time ;series.

d. ;With ;your ;forecasted ;dividend ;payout ;ratio, ;and ;dividend ;yield ;use ;equation ;12.6 ;to ;compute ;the ;forward ;earnings ;multiple.

e. ;Estimate ;the ;value ;of ;the ;S&P ;500

f. ;Is ;the ;market ;fairly ;valued, ;undervalued, ;or ;overvalued?

1. ;A ;company ;currently ;pays ;a ;dividend ;of ;$3.25 ;per ;share ;(D0 ;= ;$3.25). ;It ;is ;estimated ;that ;the ;company’s ;dividend ;will ;grow ;at ;a ;rate ;of ;21% ;per ;year ;for ;the ;next ;2 ;years, ;then ;at ;a ;constant ;rate ;of ;7% ;thereafter. ;The ;company’s ;stock ;has ;a ;beta ;of ;1.05, ;the ;risk-free ;rate ;is ;4.5%, ;and ;the ;market ;risk ;premium ;is ;6%. ;What ;is ;your ;estimate ;of ;the ;stock’s ;current ;price?

2. ;Assume ;that ;the ;average ;firm ;in ;your ;company’s ;industry ;is ;expected ;to ;grow ;at ;a ;constant ;rate ;of ;4% ;and ;that ;its ;dividend ;yield ;is ;5%. ;Your ;company ;is ;about ;as ;risky ;as ;the ;average ;firm ;in ;the ;industry, ;but ;it ;has ;just ;successfully ;completed ;some ;R&D ;work ;that ;leads ;you ;to ;expect ;that ;its ;earnings ;and ;dividends ;will ;grow ;at ;a ;rate ;of ;50% ;[D1 ;= ;D0(1 ;+ ;g) ;= ;D0(1.50)] ;this ;year ;and ;30% ;the ;following ;year, ;after ;which ;growth ;should ;return ;to ;the ;4% ;industry ;average. ;If ;the ;last ;dividend ;paid ;(D0) ;was ;$2.25, ;what ;is ;the ;value ;per ;share ;of ;your ;firm’s ;stock?

sp-500-eps-est.xlsx ;