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)Please note that the following information contained in this document must be used to complete the subsequent questions.
1-bm's beta ; 2- Ibm's current annual dividend ;3-Ibm's 3 year dividend growth rate; 4- Industry P/E .5-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 theoretical price or PO. 5-Now use appropriate web resources to find IBM'S CURRENT STOCK QUOTE OR P.Do you see any differences ? Can you explain 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 KRF AND STOCK BETA REMAINS THE SAME FOR THIS EXERCISE.What will be the new price ? 7-rECALCULATE ibm's stock using the P/E ratio model .Explain why the present stock price is different from the price arrivedat using CGM(Constant Growth Model)

Solution Summary

The solution explains the calculation of share price using the constant growth model and the data for IBM corporation

You use constantgrowth dividend valuation model (i.e. Gordon model) to find the current market price of a stock. The required rate of return for this stock increases from 15 to 17 percent combined with an increase in the growth rate from 7 to 9 percent. Given these changes, show whether the price of the stock will rise or fall

Use the CAPM to calculate the Expect Rate of Return = "r"
Based on the assumptions that:
Risk Free Rate = 3.50% Rf
Market Return = 12.00% Rm
We found the Beta of AB 217 Corp = 0.85
SO
CAPM = Rf + Beta(RM - Rf) r = Question 1

Philly Corp's stock recently paid a dividend of $2 per share (Do = $2), and the stock is in equilibrium. The company has a constantgrowth rate of 5% and a beta of 1.5. The required rate of return on the market is 15%, and the risk free rate is 7%. Philly is thinking of making a chance that will increase its beta coefficient to

The U.S. Bureau of the Census publishes employment statistics and demand forecasts for various occupations. (employment in 1,000)
Occupation 1998 2008
Bill collectors 311 420
computer engineers 299 622
physicians assistant 66 98
respir

Why do stock prices change? Suppose the expected D1 is $2, the growth rate is 5 percent and the required rate of return is 10%. Using the constantgrowthmodel, what is the price? What is the impact on stock price if the growth rate is 4% or 6%? If rate of return is 9% od 11%?

1. Stock. What is the value of a stock with a
a. $2 dividend just paid and an 8% required return with 0% growth?
b. $3 dividend just paid and a 9% required return with 1% growth?
c. $4 dividend to be paid and a 10% required return with 2% growth?
d. $5 dividend to be paid and a 11% required return with 3% growth?
2. Sto

The ConstantGrowth Corporation (CGC) has expected earnings per share (E1) of $5. It has a history of paying cash dividends equal to 20% of earnings. The market capitalization rate for CGC's stock is 15% per year, and the expected ROE on the firm's future investments is 17% per year? Using the constantgrowth rate discounted div

Which of the following statements is CORRECT?
A. The constantgrowthmodel takes into consideration the capital gains earned on a stock.
B. It is appropriate to use the constantgrowthmodel to estimate stock value even if the growth rate is never expected to become constant.
C. Two firms with the same expected dividend and

Based upon the Gordon GrowthModel, calculate the anticipated market price of a stock that is paying dividends at a constantgrowth rate of 6.25%, with a recent dividend of $1.00, and a required return rate of 15%. (Show all work/calculations/formulas.)
You would like to consider purchasing a stock that is selling for $90 an

Monica Dubois, an ABC investment advisor, has a new client, Mr. Jack Klein. Mr. Klein is a conservative investor who is interested in a required rate of return of 10% on his stock investments while assuming lower market risk. You are asked to help Monica make a suitable portfolio recommendation backed by risk-return calculations