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. To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values. Assignment Guidelines: 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%. Download the XYZ Stock Information by clicking the link. 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)? If you used Microsoft Word to arrive at your answers, then you must provide an explanation of the formulas and calculations. Your submitted assignment (125 points) must include the following: A double-spaced Word document of 2–3 pages that contains the following: All of the numerical values listed in the assignment guidelines. Your answers to the four questions in the assignment guidelines. The formulas and calculations that you used to arrive at your answers You must include your explanation of how you used Microsoft Excel for your calculations if applicable. Grading: You will be graded on the accuracy of your value calculations as well as your demonstrated understanding of CAPM, CGM, and stock analysis.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more