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capm_and_intrinsic_value.docx
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Answer the questions using information below. Use Excel for calculations.
Discuss required rate of return and Capital Asset Pricing Model (CAPM). Calculate the
required rate of return using the Capital Asset Pricing Model (CAPM). Explain your
calculation
Discuss Gordon Growth Model and intrinsic value. Using the constant growth formula
(also known as Gordon Growth Model), calculate the intrinsic value of each stock.
Explain your calculation.
Gloria is a seasoned sales manager with a very large international company. Although
she has a great deal of experience with sales, she has little experience with investing.
Gloria has been investing in her company’s 401K plan. However, she has decided to
invest some extra money on her own. Gloria has $75,000 she would like to invest.
Since she has recently signed up for internet access to a broker, she is allowed a small
number of phone calls to a broker at no additional charge to her.
She calls ABC investments and talks with a Mr. Bill. She tells Mr. Bill she would like to
invest in undervalued stocks and can he recommend about ten stocks for her to
research. Mr. Bill tells Gloria his company has about 15 stocks they believe are
undervalued and will outperform the marker over time. Mr. Bill gave her the company
web site where she can down load that list of stocks.
Below is a list of those stocks:
rating
Stock
Price
Total
2003
5 year total dividend
Beta
growth
Dividends
1
$12.05
$0.95
0.65%
0.65
2
$28.02
$0.00
2.3
100.00%
3
$17.75
$0.00
0.00%
1.89
4
$15.43
$1.30
6.23%
1.2
5
$63.79
$0.75
0.95%
1.35
6
$71.11
$6.00
5.00%
.67
7
$10.00
$0.00
0.00%
1.78
8
$49.51
$0.68
0.75%
0.95
9
$45.00
$5.00
0.38%
0.92
10
$39.78
$0.00
-90.00%
1.5
11
$29.75
$2.00
2.25%
0.85
12
$73.09
$0.00
-1.00%
0.38
13
$20.39
$6.00
5.25%
0.71
14
$18.25
$1.00
8.00%
1
15
$7.00
$1.35
8.85%
0.73
Treasury Bond Rate
Return on the Broad
11.90%
Market
4.30%
…
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