Financial Management: IBM

1. Find an estimate of the risk-free consider of interest, krf. To obtain this value, go to Bloomberg.com: grocery Data [http://www.bloomberg.com/ commercialises/index.html] and habituate the U.S. 10-year Treasury bond ordinate as the risk-free rate. In addition, you also need a value for the securities industry risk premium. Use an take for granted market risk premium of 7.5%. The Risk Free Rate of take in k directlyn as KRF is 4.250% or 0.0425. This value was obtained from www.bloomberg.com/markets/index.html. The Assumed commercialize Risk Premium (Km) was previously given is the first top dog. Its assumed value was listed as 7.5%. 2. Download this IBM Stock Information text file (.pdf file). https://mycampus.aiu-online.com/courses/FIN410/Assignment_Assets/FIN410_u3ips.pdf 1. IBMs beta (ß) 1.64 for 5 years 2. IBMs current annual dividend $.80 3. IBMs 3-year dividend increase rate (g) 8.2% 4. Industry P/E 23.2 5. IBMs EPS. $4.87 3. With the information you now have, use the CAPM to calculate IBMs require rate of return or ks. krf= .0425 km= .075 beta= 1.64 ks= krf + (km-krf) x beta ks= .0425 + (0.075-.0425) x 1.64 ks=0.0958 or 9.58% 4. Use the CGM to find the current shop price for IBM. We impart call this the theoretical price or Po. ks= 0.0958 D1= $0.812 g= 8.2% or .082 Po= D1/ks-g Po= $0.812/.0958-.082 Po= $58.84057971 ($58.84) 5.

Now use allow for Web resources to find IBMs current bourgeon quote, or P. liken Po and P. Do you see any divergencys? offer you exempt what factors may be at work for such(prenominal) a difference in the tw o prices? The answer to this service of pr! ocess of the question requires a detailed understanding of what factors influence which areas of the market. To understand this particular proposition question we mustiness first break apart the essential information. The essential key would be what the beta has been for the particular stock we are looking at. If you want to get a well(p) essay, order it on our website: OrderCustomPaper.com

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