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Hello Sir,
For part b) when calculating the return on the market, I do not understand why P0 is 1. Is it not the market price of an Anchorage share which would be $2.60 ($3.20 less 60 cents)?Confused.
I am looking at Anchorage in the BPP revision kit, and there is no mention of P0 in part (b) and so I am puzzled by your question.
Sorry Sir, I meant the market price of a security in the dividend growth model which was used to calculate the market return to eventually get the cost of equity using CAPM
Also in part e) i), i am lost as to how the cost of the existing bond is approximately 9%.
The current dividend yield is 3.1% and therefore the current dividend = 0.031 x current MV.
Use any market value you want (and then use the dividend as 0.031 x that MV) and you will end up with exactly the same answer 🙂
With regard to the bond interest, it is written in the question that “the cost of Anchorage’s existing 5 years bonds is approximately 9%”
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