View the step-by-step solution to:

# Find an estimate of the risk-free rate of interest (krf). To obtain this value, go to Bloomberg. Market Data and use the &quot;U. 10-year...

•Find an estimate of the risk-free rate of interest (krf). To obtain this value, go to Bloomberg.com: Market Data and use the "U.S. 10-year Treasury" bond rate (middle column) as the risk-free rate. In addition, you also need a value for the market risk premium. Use an assumed market risk premium of 9.00%.
•Download the XYZ Stock Information by clicking the link.
•Using the information from the XYZ Stock Information document, record the following values:
◦XYZ's beta (ß)
◦XYZ's current annual dividend
◦XYZ's 3-year dividend growth rate (g)
◦Industry P/E
◦XYZ's EPS
•With the information you recorded, use the CAPM to calculate XYZ's required rate of return (ks).
•Use the CGM to find the current stock price for XYZ. We will call this the theoretical price (Po).
•Now use the XYZ Stock Information to find XYZ's current stock quote (P). Compare Po and P and answer the following questions:
◦Are there any differences?
◦What factors may be at work for such a difference in the two prices?
•Now assume the market risk premium has increased from 9.00% to 12% and this increase is due only to the increased risk in the market. In other words, assume the krf and the stock's beta remain the same for this exercise.
◦What will the new price be? Explain.
•Recalculate XYZ's stock price using the P/E ratio model and the needed info found in the XYZ Stock Information file.
◦Why is the present stock price different from the price arrived at using CGM (Constant Growth Model)?
•If you used Microsoft Word to arrive at your answers, then you must provide an explanation of the formulas and calculations.
Your submitted assignment (125 points) must include the following:

•A double-spaced Word document of 2–3 pages that contains the following:
◦All of the numerical values listed in the assignment guidelines.
◦Your answers to the four questions in the assignment guidelines.
◦The formulas and calculations that you used to arrive at your answers
•You must include your explanation of how you used Microsoft Excel for your calculations if applicable.
Grading:

You will be graded on the accuracy of your value calculations as well as your demonstrated understanding of CAPM, CGM, and stock analysis

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents
• ### -

Question & Answers

Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

Ask a Question