Investment and portfolio analysis

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Reference no: EM13754105

Name SKY NETWORK TELEVISION NZX 50  RFR p.a.
14.07.2009 4,14 1869,29 0,0279
14.08.2009 4,73 2141,46 0,0276
14.09.2009 4,76 2105,54 0,0277
14.10.2009 4,83 2133,24 0,0279
14.11.2009 4,95 2108,69 0,028
14.12.2009 4,85 2053,39 0,0278
14.01.2010 5,19 2172,35 0,0278
14.02.2010 4,73 2040,34 0,0273
14.03.2010 5,08 2119,55 0,0267
14.04.2010 5,16 2174,19 0,0269
14.05.2010 4,81 2078,41 0,0289
14.06.2010 4,64 1967,74 0,0307
14.07.2010 4,8 1955,46 0,0323
14.08.2010 5,01 1946,98 0,0325
14.09.2010 5,2 2043,19 0,0318
14.10.2010 5,15 2069,79 0,0318
14.11.2010 5,44 2095,36 0,0317
14.12.2010 5,16 2069,15 0,0317
14.01.2011 5,3 2119,48 0,0319
14.02.2011 5,35 2128,02 0,0313
14.03.2011 5,46 2093,05 0,0269
14.04.2011 5,83 2140,91 0,0265
14.05.2011 5,72 2190,2 0,0266
14.06.2011 5,62 2148,2 0,0265
14.07.2011 5,8 2096,63 0,0271
14.08.2011 5,75 1977,91 0,029
14.09.2011 5,36 1978,81 0,0288
14.10.2011 5,48 1987,35 0,0276
14.11.2011 5,38 1987,75 0,0269
14.12.2011 5,2 1963,08 0,0269
14.01.2012 5,24 1929,2 0,0274
14.02.2012 5,05 1990,51 0,0275
14.03.2012 5,29 2080,1 0,0274
14.04.2012 5,25 2049,09 0,0274
14.05.2012 5,48 2087,52 0,0259
14.06.2012 4,94 1996,43 0,0261
14.07.2012 5,06 2040,12 0,0267
14.08.2012 5,2 2106,35 0,0264
14.09.2012 5,03 2201,96 0,0264
14.10.2012 5,01 2231,87 0,0265
14.11.2012 5,08 2261,21 0,0264
14.12.2012 4,83 2260,95 0,0265
14.01.2013 4,97 2360,24 0,0266
14.02.2013 5,1 2408,1 0,0266
14.03.2013 5,27 2464,05 0,0264
14.04.2013 5,33 2479,84 0,0265
14.05.2013 5,47 2596,32 0,0264
14.06.2013 5,63 2459,92 0,0264
14.07.2013 5,41 2539,08 0,0264
14.08.2013 5,25 2514,77 0,0264
14.09.2013 5,72 2569,93 0,0265
14.10.2013 6,01 2589,35 0,0267
14.11.2013 6,22 2690,88 0,0266
14.12.2013 5,85 2565,92 0,0273
14.01.2014 5,94 2646,48 0,0288
14.02.2014 5,78 2658,54 0,0293
14.03.2014 6,28 2746,7 0,0305
14.04.2014 6,45 2718,11 0,0324
14.05.2014 6,39 2796,4 0,0338
14.06.2014 6,7 2762,55 0,0352
14.07.2014 6,55 2737,26 0,0368

Investment and Portfolio Analysis

Question 1: Equity Analysis

One of the core business areas of A.P. Investments is active asset allocation and to be successful in this area it is important that A.P. Investments has superior stock picking skills. What your boss would like you to do is to come up with a recommendation to buy, sell or hold the stock of Ryman HealthCare. This is a complex task as it requires you to combine many of the skills you have applied previously.

To give you some direction, your boss has told you that he wants you to apply a three-stage Dividend Discount Model. In this model the key ingredients are: k, the cost of equity/required rate of return; g, the growth rate in dividends; and D, the dividend.

To estimate the cost of equity, k, your boss has provided you with 5 years of monthly data and suggests you use the CAPM to estimate the historical beta. Once you have estimated the beta, you can compute the expected cost of equity. To do this your boss suggests that you use a risk-free rate of3% and a market risk premium of 7.5%.

To determine the growth rate of dividends your boss suggests the following approach. For the years 2014-2016 you assume that dividends will grow at the historical dividend growth rate for the period from 2006 to 2013. From 2017 - 2019 the dividend growth rate will increase by 2% p.a. From 2019 onwards dividends will grow at a constant rate of 7% p.a.

Use the dividend discount model to determine a fundamental value for Sky TV's stock price. Given that the current price of Sky TV is $6.52, what is your recommendation?

Reference no: EM13754105

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