Regulatory Environment Post 2008 on Business Plan

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g = Growth rate in dividends

DPS = Cathay Bank has a dividend of $0.010

Ks = 6% + (6.8%) * 1.0 = 12.8% (we employ a Beta of 1 since it should be the same as the one used for the market during period of stable growth)

g = 5.53% (3.53% inflation + 2% GDP growth).

V = 0.010 * (1.055) / (.1280-.0553)

V = $145

Rate of return

Rate of return = [Dt + (Pt - Pt-1) / Pt-1], where'd denotes dividends while P. is for the stock price. The value (Pt - Pt-1) is denotes the capital gain on the stock.

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If we consider the performance of Cathay from 12/01/2008 up to 12/01/2011 with the Starting price/share of $16.16 and Ending price/share of $13.60, We find that

The rate of Return is = 0.105 +(13.60-16.6)/16.6

= -47.33

Conclusion

It is not worth buying the common stock as a result of the relative low rate of return. Cathay Bank's strong market position among the Japanese and Japanese-American population positions should be used to its advantage in expanding its business portfolio so that it may become profitable. A review of the general behavior of the common stock from Cathay Bank reveals a.....

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