Risk and Capital
FINA310-1202A-06
Financial Management
Project face: Unit 3 Individual Project
April 8, 2012
Abstract
Using the company XYZ and its stemma information provided in the assignment guidelines as hearty as the link provided to Bloomberg, will assist in the calculations for this project. One of the important objectives is the understanding of how theoretical transmit prices ar calculated as well as the effects of market forces such as stakes ad interest paces. Using the guidelines provided and the formulas from the textbook here is how the calculations are achieved.
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Risk and Capital
Risk-free rate of Interest
The estimate of the risk-free rate of interest for a10-year rate for government bonds is 2.18% (Bloomberg, 2012). The assumed market risk premium is given as 7.5%.
Values
The following information was retrieved from the XYZ filiation information and is as follows:
XYZs beta (ß) = 1.64
XYZs current annual dividend = $.80
XYZs 3-year dividend growing rate (g) = 8.2%
Industry P/En = 23.2
XYZs EPS = $4.87
CAPM
CAPM will outright be used to calculate the companys undeniable rate of return (ks).
CAPM: ks = Rf + (E(rm) - rf) x Beta (Brooks, 2013)
ks = 2.18% + 7.5% x 1.64 = 14.48%
ks = 14.
48%
Current Stock Quote (P)
Using GCM, the current stock price for XYZ will be calculated and this will be the theoretical price (Po).
Po= Divo x (1+g) (Brooks, 2013)
r-g
Po = $.80 x (1+ 8.2%) = $7.36 = 1.1719 or $117.19
14.48% - 8.2% 6.28%
Comparing Po and P
The current stock repeat with XYZs stock information (P) will be put in and compared to the (Po) to determine if there are any differences as well as the factors for the difference in the ii prices.
P = $76.28
Po = $117.19
There is a difference in the above two prices. The CGMs response to the dividend growth rate, discount rate, and expected dividend grade are factors for the difference in the two...If you want to get a full essay, order it on our website: Orderessay
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