Coursework Question 20
An equity pays dividends of 60p at the end of each year, which are believed to increase by 4% every year. The risk free rate of interest is 4% and the market requires an equity risk premium of 4.6% to justify holding equity.
a) Calculate how much the share price would fall if the expected rate of dividend increases fell to 1%. You may assume the first dividend due in one year's time will be 60p
Answer: £
Coursework Question 21
b) Calculate how much the share price would fall if the investors decided they required an equity risk premium of 5.6%
Answer: £
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