Schwser Notes Errors

CFA Level I Equities
#1

I would like anyone reading this to confirm whether these are errors in the Notes or not.

  1. Record Date: Schweser Notes state that this is ‘the date on which all owners of shares will receive the dividend payment on their shares.’

CFAI and every other source that I found makes it clear that this is the date management determine which shareholders are eligible for dividend payments.

  1. Multistage Dividend Discount Model Example:

Consider a stock with dividends that are expected to grow at 15% per year for two years, after which they are expected to grow at 5% per year, indefinitely. The last dividend paid was $1.00, and ke = 11%. Calculate the value of this stock using the multistage growth model. Schweser Notes calculate the terminal value using P1, which is D2/(k-g). Unless my brain has stopped functioning, it should be P2, which is D3/(k-g) = D2*(1+5%)/(11%-5%)

Can anyone confirm if my line of thinking is correct?

1 Like
#2

Agree

#3

To value the stock using the multistage dividend discount model (DDM), we need to follow these steps:

Given Information:

  • Last dividend paid (D₀): $1.00
  • Growth rate for the first 2 years (g₁): 15%
  • Growth rate after 2 years (g₂): 5%
  • Required rate of return (kₑ): 11%

Step 1: Calculate the Dividends for the First Two Years

  1. **Dividend at Year 1 (D₁):**D1=D0×(1+g1)=1.00×(1+0.15)=1.00×1.15=1.15D₁ = D₀ \times (1 + g₁) = 1.00 \times (1 + 0.15) = 1.00 \times 1.15 = 1.15D1​=D0​×(1+g1​)=1.00×(1+0.15)=1.00×1.15=1.15
  2. **Dividend at Year 2 (D₂):**D2=D1×(1+g1)=1.15×1.15=1.3225D₂ = D₁ \times (1 + g₁) = 1.15 \times 1.15 = 1.3225D2​=D1​×(1+g1​)=1.15×1.15=1.3225

Step 2: Calculate the Stock Price at the End of Year 2 (P₂)

After Year 2, the dividend growth rate changes to a constant 5% indefinitely. We can use the Gordon Growth Model (constant growth DDM) to find the stock price at the end of Year 2:

P2=D3ke−g2P₂ = \frac{D₃}{kₑ - g₂}P2​=ke​−g2​D3​​

Where:

  • D3=D2×(1+g2)D₃ = D₂ \times (1 + g₂)D3​=D2​×(1+g2​) is the dividend in Year 3.
  • ke=11%kₑ = 11%ke​=11% is the required rate of return.
  • g2=5%g₂ = 5%g2​=5% is the long-term growth rate.

First, calculate D3D₃D3​:

D3=1.3225×1.05=1.388625D₃ = 1.3225 \times 1.05 = 1.388625D3​=1.3225×1.05=1.388625

Now calculate P2P₂P2​:

P2=1.3886250.11−0.05=1.3886250.06=23.14375P₂ = \frac{1.388625}{0.11 - 0.05} = \frac{1.388625}{0.06} = 23.14375P2​=0.11−0.051.388625​=0.061.388625​=23.14375

Step 3: Calculate the Present Value of the Dividends and the Stock Price

We now discount each dividend and the stock price P2P₂P2​ back to the present (time t=0t = 0t=0) using the required rate of return kekₑke​.

  1. **Present value of D1D₁D1​:**PV(D1)=1.15(1+0.11)1=1.151.11=1.036\text{PV}(D₁) = \frac{1.15}{(1 + 0.11)^1} = \frac{1.15}{1.11} = 1.036PV(D1​)=(1+0.11)11.15​=1.111.15​=1.036
  2. **Present value of D2D₂D2​:**PV(D2)=1.3225(1+0.11)2=1.32251.2321=1.073\text{PV}(D₂) = \frac{1.3225}{(1 + 0.11)^2} = \frac{1.3225}{1.2321} = 1.073PV(D2​)=(1+0.11)21.3225​=1.23211.3225​=1.073
  3. **Present value of P2P₂P2​:**PV(P2)=23.14375(1+0.11)2=23.143751.2321=18.788\text{PV}(P₂) = \frac{23.14375}{(1 + 0.11)^2} = \frac{23.14375}{1.2321} = 18.788PV(P2​)=(1+0.11)223.14375​=1.232123.14375​=18.788

Step 4: Calculate the Total Present Value (Stock Price)

The total value of the stock is the sum of the present values of the dividends and the present value of P2P₂P2​:

Stock Price=1.036+1.073+18.788=20.897\text{Stock Price} = 1.036 + 1.073 + 18.788 = 20.897Stock Price=1.036+1.073+18.788=20.897

Final Answer:

The value of the stock using the multistage growth model is approximately $20.90.
above content is from chatgpt, the same as mine, so I reckon you are right