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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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Ibm's Stock Price
IBM'S STOCK PRICE. ... Step 5: IBM's current stock price as of September 7, 2007 is
$115.55, comparing that to $7.50 there is a huge difference. ... ... -
Risk And Capital
... data for IBM, I will show the formulas for Capital Asset Pricing Model (CAPM) and
the Constant Growth Model (CGM) and how they determine IBM's stock price. ... ... -
10 Yr Treasury Risk-Free Rate Of Interest, Krf.
... You will use both the CAPM (Capital Asset Pricing Model) and the Constant
Growth Model (CGM) to arrive at IBM's stock price. To ... ... -
Risk And Capital
... or ks. Ks = rf + risk premium *beta = 4.39% + 7.5%*1.666 = 16.89% Using
the CGM to find the current stock price for IBM. P0 = D1 ... ... -
Estimate Of The Risk-Free Rate Pf Interest ("Us 10-Year Treasury" ...
... CAPM: ks = RF +{ (kM – Krf) x Beta} = ks = 4.78% + {7.5% x 1.64) = 17.08% ks =
17.08% 4. Use the GCM to find the current stock price for IBM. ... ...
