Calculate the share price on august

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Reference no: EM132190009

Question - Today is 1 August 2018. Jim is 30 years old today and considering purchasing 5,000 units of XYZ shares today (XYZ's current share price=$20). Jimmy will use his own savings to cover 20% of the purchase cost ($20,000) and planning to borrow the remaining 80% of the purchase cost using a 5-year personal loan (Starting 1 August 2018) from a Bank. Jimmy also plans to sell all the XYZ shares in 5 years time (1 August 2023). He predicts the XYZ share price will grow at a rate of y% p.a. Jimmy assumes that y = the Australian 10-year Government Bond Yield for 2017 + 10%. You need to use FactSet to find the Australian 10-year Government Bond Yield for 201722. Jimmy assumes that XYZ shares will pay a dividend on 1 January and 1 July of each year and predicts two potential outcomes for the dividend amount.

Outcome 1: the dividend amount is assumed to be $1 on 1 January 2019 and will increase at a rate of 5% per half-year.

Outcome 2: the dividend amount is assumed to be $3 on 1 January 2019 and will increase at a rate of 2% per half-year.

1. Calculate the share price on 1 August 2023.

2. Calculate the accumulated dividend value for outcomes 1 and 2. Assume a reinvestment rate of 0.5% per month.

3. Calculate the holding period rate for outcome 1 and 2. You can consider that the initial investment cost is $100,000 and the interest payment of this investment is the dividend payments. Express answer as an annual rate of compound interest.

Please shows excel formulas as well.

Reference no: EM132190009

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