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Part 1: Consider the Gordon model of constant growth rate assumption. State briefly what this...

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Finance

Part 1: Consider the Gordon model of constant growth rate assumption. State briefly what this model says about the value of stocks. In 2018, Walmart paid $2.08 in dividends per share. The stock traded for about $96 per share towards the end of the year. Find out a set of inputs to the Gordon growth model (e.g., the assumed growth rate g and the required rate of return r, that make the intrinsic value of the stock equal to the trading price of $96. There can be many combinations; you just need to find out one such combination by trial and error.

Part 2: Suppose you have 10,000 to invest and you can choose up to five companies' stocks (or fewer) to split this investment. Which companies would you choose so that you create a well-diversified portfolio (usually diversification requires more types of investments, but this is a simpler example)? Review the concept of diversification and the role of correlation in Chapter 8. Defend your choice based on chapter 8.

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