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Unformatted text preview: 6. Kj= Rf +[bj * (Km Kf)] 3.54 + [ 1.64 * 10)] 3.54 * 16.4 19.94 There was a large increase due to the change in the market risk premium. The change of 7.5 % to 10% made a large difference. 7. CGM Stock price= 23.2 * 4.87 112.984 The current price stock is different from the theoretical price because of the price earnings. Price earnings is what makes the difference in calculations. The Constant Growth Model is just that. The price is different because of the growth that is shown. When a stock grows the price grows....
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- Spring '09