Assume That the Average Annual Historical Return for Shares That

question 9

Multiple Choice

Assume that the average annual historical return for shares that comprise the Australian All Ordinaries index is 12%, and the standard deviation of returns is 20%. Based on these numbers what is a 95% prediction interval for 2016 returns?

• A)-20%, 35%
• B)-10%, 40%
• C)-28%, 52%
• D)-15%, 35%

Calculate the intrinsic value of stocks using dividend discount models.

Understand the impact of dividend policy on dividend growth rate and firm valuation.

Comprehend the Gordon growth model and its conditions for application.

Describe the dividend reinvestment and its impact on company growth and stock value.

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Definitions:

Political Risk

The risk that an investment's returns could suffer due to political changes or instability in a country, which can affect the business environment and profitability.

Correlation Risk

The potential for financial loss due to changes in the relationship or correlation between the performances of two or more assets.

Diversified Risk

Diversified risk refers to the reduction of risk in an investment portfolio by allocating investments among various financial instruments, industries, or other categories.

Systematic Risk

This is the exposure to uncertainty faced by all investments in a market or a sector, and is also recognized as market risk or non-diversifiable risk.