Topic:Money, Banking, and Finance
Subject:Finance
Volume: 4 pages
Type: Essay
Format: APA
Description
The assignment should be not longer than 1,000 words,
Assignment
(a) Evaluate the Gordon growth model. Assess the importance of dividends as the basis of determining the value of a common stock and explain how the growth rate used in the model can be determined. Explain how the rate of growth in a firm’s earnings translate into growth in its share price over a year and develop a mathematical example to explain why an investor that is primarily concerned with capital gains would estimate a firm’s current market price on the basis of expected future dividends. How does the pricing of stocks to yield relate to changing expectations about the level of growth in dividends, and how does this relate to the risk of investing in the stock of a retail firm such as Next? [80 marks] (b) Explain how stock prices are related to events in the UK economy and account for the reasons why changes in stock prices tend to lead or follow major events or changes in the economy. [20 marks] Assignment Guide
This assignment enables you to draw on the lecture on the role of the stock market, including the valuation of common stocks and related readings. In order for you to answer the questions within the word limit and show your understanding of the Gordon model and how the model may be applied, you will need to focus specifically on the elements on which to concentrate, and which you think are most relevant. It is important for you to cover the theoretical basis of the model, including its assumptions and to assess the models’ efficacy, including your reasoned assessment of the models’ strengths and weaknesses. Remember that the assignment requires you to develop a mathematical example, which will allow you to demonstrate your understanding of how the model may be applied in determining the price of a common stock. The second part (b), of the assignment allows you to discuss briefly how stock prices are related to events in the UK economy. You should answer the question directly as you will not gain marks by avoiding answering the specific points of the question, so you will need to give careful consideration to all parts of the question. In the development of your answer you are expected to include relevant economic and financial concepts. Be mindful that imperfect English is infinitely preferable to plagiarism! The assignment should be typed written on one side of the paper only. Please ensure that your assignment is properly referenced. Avoid the temptation of presenting the discussion under separate headings. I expect to see coherent and logical communication of ideas and economic and financial concepts with linkages between the central points of the question. The marks will be allocated as follows: Relevance of content, structure and logical development 40% Demonstrable knowledge of the topic 25% Use of supporting literature and examples from financial systems 15% Connected between all parts of the discussion 10% Strength of conclusion 10%
