Step 1:

I used the "U.S. 10-Year Treasury" bond rate from the financial data that was given for this assignment to get the risk free rate which is 4.50%. The market risk premium is assumed at 7.5%.

Step 2:

By using the financial data given for this assignment I completed the subsequent questions (American InterContinental University Online, 2007);

1) IBM's beta (b) = 1.64.
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.

Step 3:

With the information I have now from steps 1 and 2 I can calculate the required rate of return for IBM using the Capital Asset Pricing Model (CAPM);
kj = RF + [bj * (km – RF)]
Where:
kj = required return on asset
RF = risk-free rate of return, commonly measured by the return on a U.S. Treasury bill = 4.50% as of September 06, 2007, 8:30pm, CST.
bj = beta coefficient or index of nondiversifiable risk for asset j = 1.64.
km - RF =......

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Title: Ibm's Stock Price
Approximate Word Count: 624
Approximate Pages: 3 (250 words per double-spaced page)

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