SOLUTION: I have an assignment in my FINA class and I have tried to see what he is talking about, but I cannot. I have had to go to the Bloomberg.com website to find a rate, and I just do no
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Question 802799: I have an assignment in my FINA class and I have tried to see what he is talking about, but I cannot. I have had to go to the Bloomberg.com website to find a rate, and I just do not see it! Can someone please help me?
I will list the problem so you can see what I am talking about.
By walking through a set of financial data for XYZ, this assignment will help you better understand how theoretical stock prices are calculated and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (capital asset pricing model) and the constant growth model (CGM) to arrive at XYZ's stock price.
Find an estimate of the risk-free rate of interest (krf). To obtain this value, go to Bloomberg.com: Market Data and 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 9.00%.
Using the information from the XYZ Stock Information document, record the following values: XYZ's beta (ß)
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 9.00% to 12% 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)?
I cannot send the XYZ table, but I don't want anyone to do the work FOR me, just tell me HOW to do it if possible. For instance, when the assignment calls for "go to Bloomberg.com: Market Data and use the "U.S. 10-year Treasury" bond rate (middle column) as the risk-free rate " I looked at that thing for an hour and do not see what he is talking about!
Please help me someone!
If anyone read this, thank you for taking the time.
Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!
You need to ask your Finance questions on a Finance homework help site. This is algebra.com.
John
Egw to Beta kai to Sigma
My calculator said it, I believe it, that settles it
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