CFA Level 1 Exam

3959 Questions

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Question No. 1

A portfolio manager with Churn Brothers Brokerage is trying to determine whether shares of Mile High Airlines are fairly valued. In his analysis, the portfolio manager is using the two-stage dividend discount model, and has ascertained the following information:

Mile High Airlines is expected to grow at a rate of 20% per year for the next four years.
At t5, Mile High Airlines is anticipated to return to its long-term growth rate of 10% per year. D0 = $0.44

r = 15.75% per year

Common shares outstanding = 1,500,000

Given this information, what is the value of Mile High Airlines? Use the two-stage dividend discount model.
Choose the correct option from the given list.
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