***** I need this answer As Fast As Possible Im in the desert with no help*****
By walking you through a set of financial data for IBM, this
assignment will help you better understand how theoretical stock
prices are calculated; and how prices may react to market forces such
as risk and interest rates. You will use both the CAPM (Capital Asset
Pricing Model) and the Constant Growth Model (CGM) to arrive at IBM's
stock price. To get started, complete the following steps.
1. Find an estimate of the risk-free rate of interest, krf. To obtain
this value, go to Bloomberg.com: Market Data
[http://www.bloomberg.com/markets/index.html] and use the "U.S.
10-year Treasury" bond rate as the risk-free rate. In addition, you
also need a value for the market risk premium. Use an assumed market
risk premium of 7.5%.
2. Download this IBM Stock Information document (.pdf file)=
(https://mycampus.aiu-online.com/courses/FIN410/Assignment_Assets/FIN410_u3ips.pdf.)
Please note that the following information contained in this document
must be used to complete the subsequent questions.
IBM's beta (ß)
IBM's current annual dividend
IBM's 3-year dividend growth rate (g)
Industry P/E
IBM's EPS.
3. With the information you now have, use the CAPM to calculate IBM's
required rate of return or ks.
4. Use the CGM to find the current stock price for IBM. We will call
this the theoretical price or Po.
5. Now use appropriate Web resources to find IBM's current stock
quote, or P. Compare Po and P. Do you see any differences? Can you
explain what factors may be at work for such a difference in the two
prices? This section is especially important - with more weight in
grading - so you may want to do some study before answering such a
question. Explain your thoughts clearly.
6. Now assume the market risk premium has increased from 7.5% to 10%;
and this increase is due only to the increased risk in the market. In
other words, assume krf and stock's beta remains the same for this
exercise. What will the new price be? Explain what happened.
7. Recalculate IBM's stock using the P/E ratio model (pp. 350-1) and
the needed info found in the IBM pdf file. Explain why the present
stock price is different from the price arrived at using CGM (Constant
Growth Model).
formula from 350
P/E ratio = Price per share/earnings per share
Appropriate Stock Price = Industry P/E Ratio x EPS
***To receive full credit on this assignment, please show all work,
including formulae and calculations used to arrive at financial values |
Request for Question Clarification by
livioflores-ga
on
09 Aug 2005 18:26 PDT
Hi!!
I am not sure about the purpose of this question, if it is a homework
assignment for a class you are studying the only help we can give you
is a guidance on how to answer this question (formulas, solution
steps, concepts, sources, etc.). But if you found this problem in a
textbook that you are reading as self-taught we cangive you a more
complete answer.
Please let us know what must we do with this question.
Regards,
livioflores-ga
|
