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Will upload assignmentMicrosoft Word - Document1 Part 1:    John and Roberta Johnson are approaching retirement. They have accumulated $800,000 in funds. They  would like to divide their funds into two equal portfolios, one conservative portfolio that will generate  income, and one aggressive portfolio that is focused on growth where income generation is not a  consideration.    Design two separate 400,000 portfolios based on the goals of each portfolio.    Each portfolio should contain 3 common stocks, one investment grade bond you researched at this site,  and one ADR you researched at this site.  Be sure to choose stocks for each portfolio with appropriate dividend yields and betas based the goal of  each portfolio. Explain why you believe each investment chosen is a good choice based on fundamental  analysis. Explain what type of business each stock choice represents, and information about the financial  position of each company. Be sure your portfolios are diversified and all your investments aren’t in the  same type of business.  Finally, put all your investments for each portfolio into a table and in the table show the amount of  money in each investment, the beta for each stock chosen, the dividend yield for each stock chosen, and  the coupon rate for each bond chosen.  Be sure to discuss:    Reasons for your investment choices  Stock investment risk and return factors based on beta  Bond interest rate risk  Part 2:    Briefly discuss the concepts of the dividend discount model. Be sure to show the DDM formula.    Your response should contain 1800‐2000 words and a table.

Harshit · Accepted Answer

QUESTION 2
DIVIDEND DISCOUNT MODEL (DDM)
Dividend Discount Model refers to a quantitative method of valuation of stock prices of a company. It is based on the assumption that the current fair price of the stock is equal to the sum of dividends that the company is going to pay in future discounted by the present value or the risk-adjusted rate (Lazzati, N. and Menichini, A.A., 2015). It also considers the fact that the investors buy the shares of a company with only the purpose of receiving a dividend. Based on this, the valuation of the stock is done as undervalued or overvalued. Like, if the present value of stock calculated under the Dividend Discount Model is higher than the current trading price of the stock, the stock will be considered as undervalued and a buying decision shall be made for such stocks.
The intrinsic value of the stock refers to the present value of all the future cash flows generated by the stock. In the case of the Dividend Discount Model, the cash flow is considered to be the dividends paid by the company in the future and is presented by the following formula:
t = period for cashflows, i.e. dividend in case of Dividend Discount Model.
The concept of the dividend discount model is considered to be more of a theoretical concept. This is because along with the dividend the investors also invest in stock for capital appreciation (means selling of a stock at a price higher than its purchase price). Therefore, we can derive the formula of the Dividend Discount Model as follows:
Dividend Discount Model = Intrinsic Value = Sum of the present value of dividends + Present Value of the Stock at which it is sold
Thus, in case a company does not pay any dividend for any year, then the cash flow expected in the future or the intrinsic value of the stock will be the sale price of the stock discounted by the present factor.
TYPES OF DIVIDEND DISCOUNT MODEL
The basic formula for the Dividend Discount Model (DDM) has been understood in the above explanation. Now, the different types of DDM are as follows:

Microsoft Word - Document1 Part 1: John and Roberta Johnson are approaching retirement. They have accumulated $800,000 in funds. They...

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