The Over and Under Valuation Theory in Stocks (Math Problem Sample)

Assignment 1
Student’s Name
Institutional Affiliation
 Assignment 1
Question 1
To get expected future dividends;
ED = Do× (1+g)
Where ED is the expected dividend
Do is the dividend for the current year
g is the percentage growth rate
Applying the above formula to the dividend values, gives rise to the following expected dividend values;
Year

Do

ED

2021

2.34

2.62

2022

2.62

2.93

2023

2.93

3.28

2024

3.28

3.67

To get the expected return of the investors, the CAPM formula is used;
Ra = RRF + β (Rm – Rf)
Where Ra is the expected return
Rrf is the risk free rate of return
β is the beta of the security
Rm is the market rate of return
In this case; Rrf = 2%, β = 1.2, Rm = 10%.