Stock Value Using CAPM and DDM
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Frazier Manufacturing paid a dividend last year of $2, which is expected to grow at a constant rate of 5%. Frazier has a beta of 1.3. If the market is returning 11% and the risk-free rate is 4%, calculate the
value of Frazier's stock.
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Solution Summary
This solution calculates Stock Value using Capital Asset Pricing Model (CAPM) and Dividend Discount Model (DDM) with step-by-step workings and all formulas shown in excel file.
Solution Preview
See excel spreadsheet attached.
1) We first calcuate the required return on equity using CAPM
CAPM (Capital Asset Pricing Model) equation is:
r A= r f + βA (r m - r f)
risk free rate= r f ...
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