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atluriram PLEASE HELP. 1-2 Pgs, APA guideline & REFERENCE PLEASE.

Customer Question
NEED BY 6/29/10. THANK YOU!! By...
atluriram PLEASE HELP. 1-2 Pgs, APA guideline & REFERENCE PLEASE. NEED BY 6/29/10. THANK YOU!!

By walking you through a set of financial data for IBM, 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 IBM's stock price. To get started, complete the following steps.

1.Find an estimate of the risk-free rate of interest, krf. To obtain this value, go to Bloomberg.com: Market Data [http://www.bloomberg.com/markets/index.html] and use the "U.S. 10-year Treasury" bond rate as the risk-free rate. In addition, you also need a value for the market risk premium. Use an assumed market risk premium of 7.5%.

2.Download this IBM Stock Information document (.pdf file). (IBM Stock Information link) https://mycampus.aiu-online.com/courses/FIN410/Assignment_Assets/FIN410_u3ips.pdf...Please note that the following information contained in this document must be used to complete the subsequent questions.
1.IBM's beta (ß)
2.IBM's current annual dividend
3.IBM's 3-year dividend growth rate (g)
4.Industry P/E
5.IBM's EPS.

3.With the information you now have, use the CAPM to calculate IBM's required rate of return or ks. Please use formula (E)Ri=Rrf+(Rm-Rrf)Beta.

4.Use the CGM to find the current stock price(Po) for IBM. We will call this the theoretical price or Po. Formula Po=D1/(r-g).. D1-Future dividend, Do-Current dividend (from pdf file in question 2), Po-Current price of stock (calculate this based on parameters calculated & parameters given)

5.Now use appropriate Web resources to find IBM's current stock quote, or P. Compare Po and P. Do you see any differences? Can you explain what factors may be at work for such a difference in the two prices? This section is especially important - with more weight in grading - so you may want to do some study before answering such a question. Explain your thoughts clearly. (Explain diffrences in prices calculated of stock & what stock is currently trading for. Look for current price of IBM & compare to prices you've calculated & explain the different prices)

6.Now assume the market risk premium has increased from 7.5% to 10%; and this increase is due only to the increased risk in the market. In other words, assume krf and stock's beta remains the same for this exercise. What will the new price be? Explain what happened. ( Is a repeat of questions 3&4 but the risk premium changes)

7.Recalculate IBM's stock using the P/E ratio model and the needed info found in the IBM pdf file. Explain why the present stock price is different from the price arrived at using CGM (Constant Growth Model).
P/E ration model:
P/E Ratio = Market price per share of common stock
_______________________________________
Earnings per share
Submitted: 8 years ago.Category: Writing Homework
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Answered in 8 hours by:
6/28/2010
Writing Tutor: atluriram,
 replied 8 years ago
atluriram
Category: Writing Homework
Satisfied Customers: 533
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sir/madam

Very much thanks, XXXXX XXXXX the assignment and will submit within scheduled time i.e. 2 days

with regards
atluri ramesh
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Customer reply replied 8 years ago
atluriram is there a problem with the assignment because you have gone past the requested date for me to turn it in???? Please respond asap...Thank you!!!
Writing Tutor: atluriram,
 replied 8 years ago
sir/madam

Sorry, I submit within a day. please excuse

with regards
atluri ramesh
Ask Your Own Writing Homework Question
Writing Tutor: atluriram,
 replied 8 years ago
Sir/madam

Please take the assignment. However I will submit modified assignment

with regards
atluri ramesh

--------------------

BASE

US 10 YEAR

COUPON 3.500

MATURITY 05/15/2020

PRICE/YIELD 104.27+/2.93

PRICE/YIELD CHANGE 0.00+/-0.02

TIME 09.53

INFORMATION

1.IBM's beta (ß)

2.IBM's current annual dividend $0.80

3.IBM's 3-year dividend growth rate (g) 8.2%

4.Industry P/E 23.2

5.IBM's EPS. $4.87

CAPM (Capital Asset Pricing Model)

KE = RF + BE (RM-RF)

KE = Firm’s cost of equity

RF = Risk free rate . i.e. U.S.Treasury bonds 7.5%

BE =

RM = Return on the market portfolio

Beta = Positive beta shows that the asset generally follow in the market, where the negative beta shows that the assets inversely follows the market.

Constant Growth Model (CGM)

Current stock price(Po) for IBM = $76.28

Po=D1/(r-g) i.e. $76.28= 0.80/7.5-8.2

REFERENCE

  1. http://en.wikipedia.org/wiki/Beta_(finance)

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Customer reply replied 8 years ago
atluriram, i dont see where you answered the questions 5-7. When will you have this completed ?
Writing Tutor: atluriram,
 replied 8 years ago
sir/madam

I will submit modified assignment within few hours

with regards
atluri ramesh
Ask Your Own Writing Homework Question
Writing Tutor: atluriram,
 replied 8 years ago
Sir/madam

Please take the assignment. However I will submit modified assignment

with regards
atluri ramesh

--------------------

BASE

US 10 YEAR

COUPON 3.500

MATURITY 05/15/2020

PRICE/YIELD 104.27+/2.93

PRICE/YIELD CHANGE 0.00+/-0.02

TIME 09.53

INFORMATION

1.IBM's beta (ß)

2.IBM's current annual dividend $0.80

3.IBM's 3-year dividend growth rate (g) 8.2%

4.Industry P/E 23.2

5.IBM's EPS. $4.87

CAPM (Capital Asset Pricing Model)

KE = RF + BE (RM-RF)

KE = Firm’s cost of equity or expected rate of return

RF = Risk free rate . i.e. U.S.Treasury bonds 3.5%

BE =

RM = Return on the market portfolio 7.5%

Beta = Positive beta shows that the asset generally follow in the market, where the negative beta shows that the assets inversely follows the market.


Therefore = 7.5% + (7.5%-3.5%) Beta = Note : Beta cannot be found as Standard deviation of an asset and market standard deviation unavailable.

Constant Growth Model (CGM)

Current stock price(Po) for IBM = $76.28

Po=D1/(r-g) i.e. $76.28= 0.80/7.5-8.2


CAPM calculation when when risk premium is 10% instead of 7.5%

Therefore = 10% + (10%-3.5%) Beta = Note : Beta cannot be found as Standard deviation of an asset and market standard deviation unavailable.

Note : Given PDF did not gave the date of document, hence though all details available with IBM document, yet cannot be considered i.e. which date ?


Note 2 : For calculation of Capital Asset Pricing model, there should be atleast more than one stock, as the model pertains portfolio of stock. Here only one portfolio


Note 3: When the beta is unavialble, remaining problem cannot be taken out

REFERENCE

  1. http://en.wikipedia.org/wiki/Beta_(finance)

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Writing Tutor: atluriram,
 replied 8 years ago
Sir/madam

I wait for the acceptance of question

with regards
atluri ramesh
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