By walking through a set of financial data for XYZ, this assignment will help yo

Question

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%. http://www.bloomberg.com/markets/ Download the XYZ Stock Information by clicking the link. https://class.aiuniv.edu/LCMSFileShareCommon/bb4/f55/18b/b6a/46c/582/a5d/8fe/c39/baa/7e/FINA310_U3_f1.pdf Using the information from the XYZ Stock Information document, record the following values: XYZ's beta (

Explanation / Answer

FOR CAPM MODEL USE :

Expected rate of return = Risk Free Rate + Beta*Market Risk Premium ;

FOR CGM MODEL USE :

Expected rate of return = D1 /Po*(1-f) + g

D1 = year end Dividend due

P0 = current stock price

g= growth rate

f = floatation cost if any

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.