this case is to calculate a stock’s price using its past dividends as an indicator of future dividend growth rates. The student must determine the stock’s required rate of return (CAPM) and future expected dividend growth rate and use the Gordon Growth Model to calculate a current price. 1. The equation for CAPM is kj = Rf + [bj x (Rm - Rf)] where‚ kj = required return on asset j‚ Rf = risk-free rate of return‚ bj = beta coefficient for asset j‚ Rm = market return. kj = 6% + 1.75(10%
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Tamisha McQuilkin Unit 4 Assignment GB550 Financial Management Dr. Prondzinski May 17‚ 2011 24-2 Security A has an expected rate of return of 6%‚ a standard deviation of returns of 30%‚ a correlation coefficient with the market of -0.25‚ and a beta coefficient of -0.5. Security B has an expected return of 11%‚ a standard deviation of returns of 10%‚ a correlation with the market of .75‚ and a beta coefficient of 0.5. Which security is more risky? Why? Using SML: rA= rrf + (rm – rrf)bi Security
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April 2014 Final Examination Finance 1 MGCR 341 April 24‚ 2:00PM-5:00PM FINAL EXAM: Solutions Examiner: Vadim di Pietro Student Name: McGill ID: INSTRUCTIONS: a) This is a CLOSED BOOK and CLOSED NOTES examination. b) The exam is 180 minutes in length. c) SHOW YOUR WORK: In order to receive credit for your answers‚ you must show your work. Correct answers with no work shown will not receive any credit. Incorrect answers with partial correct work may receive partial credit
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EXECUTIVE SUMMARYSilicon Valley Medical Technologies (SIVMED) was founded as a research and development firm. In the beginning‚ SIVMED performed its own basic research‚ obtained patents on promising technologies‚ and then either sold or licensed the technologies to other firms which marketed the products. The firm has since then grown and is now contracted to perform research and testing for larger genetic engineering firms‚ biotechnology firms‚ the US government‚ and is now widely recognized as
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James Hughes 5/12/2015 CO2520 Analysis 4 Based on your understanding of the situation‚ answer the following questions: How do people in “individualist’ cultures behave differently to people in “collectivist” cultures? In individualist cultures the connections between individuals are loose. Everyone is expected to look after themselves and their immediate family. Collectivist as it’s opposite pertains to societies in which people from birth onward are integrated into strong‚ cohesive groups‚ which
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THE BOEING 7E7 Teaching Note Synopsis and Objectives In 2003‚ the Boeing Company announced plans to build a new “super-efficient” commercial jet called the “7E7” or “Dreamliner.” This was a “bet the farm” gamble by Boeing‚ similar in magnitude to its earlier introductions of the 747 and 777 airliners. The technological superiority of the new airframe‚ as well as the fact that it would penetrate a rapidly growing market segment‚ were arguments for approval of the project. On the other hand‚ the
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INVESTMENTS - DFA Case study Introduction Dimensional Fund Advisors‚ further referred to as DFA‚ is an investment company that bases its strategy mainly on academic research and related theories. They work together with proponents of the efficient market hypothesis‚ indicating a relatively strong belief in this theory and thus in efficient markets. However DFA also feels that skilled traders have the ability to contribute to a fund’s profits even when the investment is inherently passive and
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Marriott Corporation Abstract Marriott Corporation has three divisions – lodging‚ contract services and restaurants – with dissimilar operations. The company uses three separate hurdle rates for the three divisions to value the proposed projects. It is believed that this strategy is more appropriate that using a single firm-wide discount rate because the operations of the three divisions differ drastically. However‚ the company has to ensure that the company uses an appropriate discount rate for
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Rp = 5.90% COMMON SHARES In calculating the cost of equity‚ we will use the average between the dividend growth model and the CAPM. Since R-squared = 0.13 we know that the correlation is not strong enough and the sole use of the beta given to us will prove unreliable. For this reason‚ we choose to take the average between the dividend growth model and the CAPM model if possible. Also‚ as described above‚ we decide not to count the underwriter fees in our calculation. Barb suggested that all
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latter. 12. Discuss the Capital Asset Pricing Model (CAPM) and explain how it deals with the problem of securities valuation of the market. 13. Explain how the Efficient Market Hypothesis (EMH) deals with the reaction of the market prices to the financial and other data. 14. Explain the concept of the trade-off between risk and return as well as its significance to portfolio construction. 15. Discuss the implications that the CAPM and EMH present for financial statement analysis.
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