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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.

  • 11 years ago
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