# Finace: The capital asset pricing model and share valuation

I don't know how to do this or what the instructor is talking about please help

***It has to be original and Please show me how you got the calculations so that I can learn .

Assignment Guidelines:

You will use both the CAPM (capital asset pricing model) and the constant growth model (CGM) to arrive at XYZ's stock price.

â?¢Find an estimate of the risk-free rate of interest (krf). To obtain this value, go to www.Bloomberg.com:Market Data (http://www.bloomberg.com/markets/nd ) use the "U.S. 10-year Treasury" bond rate (middle column) 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%.

see the XYZ Stock Information attached.

Using the information from the XYZ Stock Information document, record the following values:

-¦XYZ's beta (Ã?)

-¦XYZ's current annual dividend

-¦XYZ's 3-year dividend growth rate (g)

-¦Industry P/E

-¦XYZ's EPS

With the information you recorded, use the CAPM to calculate XYZ's required rate of return (ks).

Use the CGM to find the current stock price for XYZ. We will call this the theoretical price (Po).

Now use the XYZ Stock Information to find XYZ's current stock quote (P). Compare Po and P and answer the following questions:

-¦Are there any differences?

-¦What factors may be at work for such a difference in the two prices?

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 the krf and the stock's beta remain the same for this exercise.

What will the new price be? Explain.

Recalculate XYZ's stock price using the P/E ratio model and the needed info found in the XYZ Stock Information file.

Why is the present stock price different from the price arrived at using CGM (Constant Growth Model)?

Please show The formulas and calculations that you used to arrive at your answers

****Remember it must be ORIGINAL ( I can't use someone else paper it will give a high originality verification ). Please remember to show your calculations so I can learn how to do this.

Thank you

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#### Solution Summary

The problem deals with estimating the value of shares with different techqniues.