Stock Price Determination- Capital Asset Pricing Model

Augo Enterprises has a beta of 1.20 while the prevailing risk-free rate of interest is 10% and the required rate of return on the market portfolio is 14%. The company plans to pay a dividend of 2.60 per share next year and anticipates that future dividends will increase at an annual rate consistent with that experienced over the 1998-2003 period when the following dividends were paid.

Given the above information:
a. Determine the required rate of return using the CAPM

b. Using the constant growth dividend valuation model along with the finding in part A. determine the intrinsic value of Augo's stock.

c. Discuss your results.

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Augo Enterprises has a beta of 1.20 while the prevailing risk-free rate of interest is 10% and the required rate of return on the market portfolio is 14%. The company plans to pay a dividend of 2.60 per share next year and anticipates that future dividends will increase at an annual rate consistent with that experienced over the 1998-2003 period when the following dividends were paid.

Year Dividend per Share

2003 2.45
2002 2.28
2001 2.10
2000 ...

Solution Summary

Determines the required rate of return using the Capital Asset Pricing Model (CAPM) and then using the constant growth dividend valuation model determines the intrinsic value of stock.

Suppose the risk free rate is 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1.0 is 9%. Suppose you consider buying a share of stock at a price of $42. The stock is expected to pay a dividend of $3 next year and to sell then for $41. The stock risk has been evaluates at beta of

Breifly describe the capitalassetpricingmodel (CAPM), its practical use, and its limitations.
Does not have to be long and drawn out, just understandable.

A company paid a dividend of $1.20 for 2006 and has a beta of 1.2. It is expected to increase its dividend at an 8% annual rate for the foreseeable future. The expected return for the market (portfolio) is 14% and the risk-free rate is 5%.
a) Using the CapitalAssetPricingModel, what is the stock's value?
b) If the com

Consider the following information:
Stock A Stock B T-bills
Beta 0.6 1.2 0.0
Expected return, % 5.0 8.0 2.0
(a) Assuming that all stocks are priced correctly according to the CAPM, compute the expected return on the market portfolio.
(c) Is it possible for

Suppose you have invested $50,000 in the following four stocks:
Security Amount Invested Beta
Stock A $10,000 0.7
Stock B 15,000 1.2
Stock C 12,000 1.4
Stock D 13,000 1.9
The risk-free rate is 5 percent and the expected return on the market portfolio is 18 percent.

Please detail calculations so that they can be posted into an excel spreadsheet and please explain how the calculations were devised.
Suppose you have invested $ 50,000 in the following four stocks:
Security Amount Invested Beta
Stock A 10,000 0.7
Stock B 15,000 1.2

Week 6 - problem 4
Suppose you have invested $50,000 in the following four stocks:
Security Amount Invested Beta
Stock A $10,000 0.7
Stock B 15,000 1.2
Stock C 12,000 1.4
Stock D 13,000 1.9
The risk-free rate is 5 percent and the expec

You have been provided the following data on the securities of three firms, the market portfolio, and the risk-free asset:
Security Expected Return Standard Deviation Correlation Beta
Firm A 0.13 0.12 ? 0.9
Firm B 0.16 ? 0.4 1.1
Firm C 0.25 0.24 0.75 ?
The market portfolio (S&P5