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    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.

    © BrainMass Inc. brainmass.com October 10, 2019, 7:17 am ad1c9bdddf
    https://brainmass.com/economics/finance/575190

    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 ...

    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.

    $2.19