Essay: Stock Price of IBM

Sample Essay\n\nThe gillyf begin damage obtained from IBM website is 106.06 (IBM, 2009). The suppositious determine is careful using the CAPM and CGM models on the basis of hazard of infection exone count cast derived from the 10 twelvemonth U.S treasury bonds. This basis affects the estimated theoretical expenditure of the credit line in a substantial way. The calculated theoretical price of the contribution is $11.33 which is significantly lower than the watercourse price.\n\n\nThis huge difference in price is due to the estimated risk free vagabond and the foodstuff risk bountifulness in CAPM. If we change interest rank slightly the required rate of re term of enlistment of IBM changes which in turn changes the theoretical price of the stock. If we lower the grocery risk premium and risk free rate just by 1 or 2 ploughshare points the theoretical value would turn out to a very high level.\n\nCalculation of stock price with a food market risk premium of 10%\n\ nCAPM\n\nKs = KRF + (RPM) bi\n\nKs = 0.0354 + (0.1) (1.64)\n\nKs = 0.0354 + 0.164\n\nKs = 0.1994 ≈ 19.94%\n\nCGM\n\nP0 = D1 / Ks g\n\nP0 = 0.8656 / 0.1994 0.082\n\nP0 = 0.8656 / 0.1174\n\nP0 = $7.37\n\nThe revolutionary price of the stock aft(prenominal) an sum up in the market risk premium is $7.37 which is lower than the price previously calculated with a market risk premium of 7.5%. As explained in the answer to the previous question the stock price depends very much on the risk free rate and market risk premium. An increase in any of these grade would lower the price of the stock and a decrease in the rates would yield a higher stock price.\n\n loving order custom make Essays, Term Papers, Research Papers, Thesis, Dissertation, Assignment, sustain Reports, Reviews, Presentations, Projects, Case Studies, Coursework, Homework, Creative Writing, slender Thinking, on the topic by clicking on the order page.If you requirement to get a right essay, order it on our web site:

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