Introduction

For this paper, I will discuss how theoretical stock prices are calculated and how prices may react to market forces such as risk and interest rates. By using financial 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. Lastly, I will compare and discuss IBM's theoretical stock price (Po) and its actual market stock price (P) and discuss why there is such a difference between the two.

Risk Free Rate of Interest

The first thing we need to do for this assignment is to find an estimate of the risk-free rate of interest (krf). According to the Bloomberg.com website, the krf for U.S. Treasuries 10-year Notes and Bonds is 4.25%. Our assignment gives us an assumed market risk premium of 7.5%.
We then need to know the following information from the IBM Stock Information provided in the assignment:
1. IBM's beta (ß) = 1.64
2. IBM's current annual dividend =......

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Title: Risk And Capital
Approximate Word Count: 927
Approximate Pages: 4 (250 words per double-spaced page)

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