Risk & Capital (Financial Management)

Risk & amp; Capital, Unit 3 Individual Project financial Management - FINA310-1005B-01 Abstract In this weeks individual travail paper, a set of financial data will be analyzed (via provided XYZ downloaded information, Bloomberg.com, IP provided assumptions, and Web resources) in order to see expected returns and theoretical stock prices for XYZ Corporation. The CAPM (capital asset pricing model) and CGM (constant reaping run) will be used to arrive at the ships company stock price. Assignment: The risk-free rate of interest (krf) measure is gathered from the Bloomberg.com website. The 10-year U.S. Treasury bond rate is the risk-free rate. fit to the Bloomberg.com, the U.S. 10-year Treasury bond coupon is 2.625 or 2.6% (as of Thursday 20, January 2011) (Rates & Bonds: Government Bonds, 2011). The sham market risk premium is assumed at being 7.5%. reading gathered from the XYZ Stock Information page (downloaded via IP assignment) reveals the following values: * XYZs genus Beta (?) = 1.64 * XYZs current annual dividend = $0.80 * XYZs 3-year dividend harvest-feast rate (g) = 8.2% * Industry Price/Earnings (P/E) = 23.2 * XYZs Earnings Per pct (EPS) = $4.87 * U.S. 10-year Treasury bond (risk free rate) = 2.6% * Market Risk bountifulness = 7.5% 1.

Using CAPM (Brooks, 2010) to calculate the required rate of return (ks), the canon would be: Ks = risk free rate + (market risk premium) x beta Plugging in the information, ks = 2.6% + (7.5%)1.64 = 2.6% + 12.3 = 14.9% 2. Using the CGM to calculate the current stock price, or theoretical price (Po), a law will be utilized: Po = D1/ (r g) where r and g is (rate of return - growth rate) D1 represents the next year dividend. In order to find it, formula is: D0(1+g) …….(D0 represents current dividend, g is growth) D1= $0.80(1 + 8.2%) = $0.80(1 + 0.082) = $0.80(1.082) Po = $0.80(1.082)/(0.149 - 0.082) = 0.8656/0.067 = $12.919 or $12.92 3. Per the XYZ... If you want to trance a full essay, order it on our website: Orderessay

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