2-3 pages Details: 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 7.5%. ?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 (?) ?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 appropriate Web resources 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 7.5% to 10% 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 2?3 page, double-spaced Word document 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. Company XYZ's stock information has been provided as an attachment. Please use $128 for the company stock price. Added informaion from the professor: The CGM (Constant Growth Model) is also called the Gordon Model. Stock Value (PO) = D1/ E(ri) -G Where: D1 = D*(1+G) E(ri) = Required rate of return (this is your CAPM) G = Growth rate in dividends (in perpetuity). This figure is the 3-year dividend growth rate. The first two steps of this week's IP do not require any calculations. These are simply information-gathering steps that will allow you to do the necessary calculations required in the latter steps.,I made a zero on this assignment due to the the fact that it was written about McDonalds instead of the company XYZ. Company XYZ's information was laid out in the assignment details and I attached the financial information for the company with the assignment. I will not be paying for this paper.
Paper#4117 | Written in 18-Jul-2015Price : $25