Essay: Stock Price of IBM

Sample Essay\n\nThe timeworn bell obtained from IBM website is 106.06 (IBM, 2009). The suppositious impairment is work out using the CAPM and CGM models on the basis of assay salvage stray derived from the 10 social class U.S treasury bonds. This basis affects the estimated theoretical set of the line in a substantial way. The calculated theoretical bell of the contend is $11.33 which is significantly sink than the up-to-the-minute value.\n\n\nThis huge difference in price is due to the estimated guess set free rate and the commercialize chance agiotage in CAPM. If we change interest evaluate slightly the required rate of re process of IBM changes which in turn changes the theoretical price of the banal. If we lower the market venture premium and risk free rate just by 1 or 2 parting points the theoretical value would part to a very higher(prenominal) level.\n\nCalculation of stock price with a market risk premium of 10%\n\nCAPM\n\nKs = KRF + (RPM) bi\n\nK s = 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 new price of the stock after an gain 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 resoluteness to the previous question the stock price depends very ofttimes on the risk free rate and market risk premium. An increase in all of these rates would lower the price of the stock and a slump in the rates would offspring a higher stock price.\n\nKindly parade tailored made Essays, Term Papers, search Papers, Thesis, Dissertation, Assignment, Book Reports, Reviews, Presentations, Projects, Case Studies, Coursework, Homework, productive Writing, Critical Thinking, on the number by clicking on the order page.