The following stock quotation for Coca-Cola was reported on Wednesday, June 8, 2

Question

The following stock quotation for Coca-Cola was reported on Wednesday, June 8, 2016 when market closed at 4:00 PM Eastern time The Coca-Cola Company (KO) - NYSE What was June 8 close price of Coca-Cola stock? How did it change from previous day (June 7th)? If you purchased Coca-Cola stock at the 52 weeks low and sold it at the close price of June 8,2016. You have received dividend during this holding period. Calculate your holding period rate of return Show how the 3.14% yield is calculated. Currently, the 3-month T-bill interest rate is 0.4%, and required return on the stock market is 12.2%. Calculate required rate of return of Coca-Cola stock using the CAPM model. Assume the dividend growth rate is 5%, calculate the true value and annual rate of return using Gordon Model. Draw a security market line(SML) using the data above. Determine the intercept and slope of the SML. According to the CAPM model, will you buy Coca-Cola stock or not? Why?

Explanation / Answer

1)jun 8 closing price is $44.72 which we can find from days range.
june 7th closing price is 44.7 and change is 44.72-44.7=0.02

2)change in price=44.72-36.56=$8.16
dividend received=1.4
holding period return =(1.4+8.16)/36.56
=26.15%

3)dividend yield= dividend paid/ current share price
=1.4/44.72
=3.14%

4)Required return=Rf+Beta*(Rm-Rf)
=0.4%+0.85*(12.2%-0.4%)
=10.43%

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