Attached is what i have so far to answer questions 1 & 2 below….i need to know if i am on the right track, or if i am way off. I am not just looking for answers, but more explanations on how to solve the answers being asked below.
|
rating |
Stock Price |
Total 2003 Dividends |
5 year total dividend growth |
Beta |
|||
|
1 |
$12.05 |
$0.95 |
0.65 |
0.65 |
|||
|
2 |
$28.02 |
$0.00 |
-100.00 |
2.3 |
|||
|
3 |
$17.75 |
$0.00 |
0.00 |
1.89 |
|||
|
4 |
$92.43 |
$1.30 |
6.23 |
1.2 |
|||
|
5 |
$63.79 |
$0.75 |
0.95 |
1.35 |
|||
|
6 |
$2.88 |
$0.00 |
-8.00 |
1.05 |
|||
|
7 |
$10.00 |
$0.00 |
0.00 |
1.78 |
|||
|
8 |
$49.51 |
$0.68 |
0.75 |
0.95 |
|||
|
9 |
$101.00 |
$5.00 |
0.38 |
0.92 |
|||
|
10 |
$39.78 |
$0.00 |
-90.00 |
1.5 |
|||
|
11 |
$29.75 |
$2.00 |
2.25 |
0.85 |
|||
|
12 |
$73.09 |
$0.00 |
-1.00 |
0.38 |
|||
|
13 |
$20.39 |
$6.00 |
5.25 |
0.71 |
|||
|
14 |
$18.25 |
$0.00 |
0.00 |
1.2 |
|||
|
15 |
$7.00 |
$1.35 |
8.85 |
0.73 |
|||
|
Treasury Bond Rate |
4.30% |
||||||
|
Return on the Bond Market |
11.90% |
||||||
Dividend growth is the compound growth rate between Dt-5 and Do.
Constant growth valuation model
Vcs= D1/ Kequity-g
Vcs= is the value of the share of common stock
D1 is the expected dividend (the last paid dividend times (1+g
Kequity is the required return (Gloria would use the CAPM to determine this)
g. is the growth rate of the dividend
Capital Asset Pricing Model
Kequity =Krf + B(Km –Krf)
Answer the below questions
1. Calculate the required rate of return using the Capital Asset Pricing Model (CAPM).
2. Using the constant growth formula, calculate the value of each stock
3. Compare the values you calculated in questions 1 & 2. Do the values closely approximate the stocks market price? If not why not?
4. What do your results mean for Gloria?
5. How does your result affect the “market efficiency” theory.
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