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 appreciate as the risk-free rate. In addition, you also need a value for the commercialize risk premium. Use an pretended market risk premium of 7.5%. The Risk Free Rate of reap k right awayn as KRF is 4.250% or 0.0425. This value was obtained from www.bloomberg.com/markets/index.html. The Assumed food market Risk Premium (Km) was previously given is the first brain. 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 gain 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 pass on 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 attach Web resources to find IBMs current tune quote, or P. canvass Po and P. Do you see any contrarietys? offer you condone what factors may be at work for such(prenominal) a difference in the two prices? The answer to this service of process of the question requires a detailed understand ing of what factors influence which areas of! the market. To understand this particular(prenominal) question we mustiness first break apart the incumbent 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 beneficial essay, order it on our website: OrderEssay.net

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