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CFA Level 1 Exam

3959 Questions

Question No. 1

# A portfolio manager is examining shares of Ottawa Industries to determine if the shares are fairly valued. Ottawa Industries common stock is currently trading at $70 per share on the New York Stock Exchange. In her analysis, the portfolio manager determines the value of Ottawa Industries common stock using the two-stage dividend growth rate model. Due to the release of several important new products, the Company is anticipated to grow at a rate of 16% per year for the next three years. After this supernormal growth rate period, Ottawa Industries is anticipated to return to its long-term growth rate of 12% per year. The Company recently paid an annual dividend of $0.90 per share, and investments of a similar nature have warranted a 13.5% per year rate of return.

Given this information, what is the value of Ottawa Industries common stock? Use the dividend discount

model. Additionally,

Choose the correct option from the given list.

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