Title: Estimate of the risk-free rate pf interest ("U.S. 10-year Treasury" bond rate

Essay Details

Subject: Business
Author: Debra K
Date: April 19, 2013
Level: University
Grade: A
Length: 2 / 472
No of views: 0
Essay rating: good 0, average 0, bad 0 (total score: 0)

Essay text:

Use the GCM to find the current stock price for IBM. We will call this the theoretical price or Po. D1 = D0 x (1 + g) = $0.80 x (1 + 8.2%) = $7.36 CGM: P0 = D1/(ks ? g) = P0 = $7.36/(17.08% ? 8.2%) = $82.88 5. Now use appropriate Web resources to find IBM's current stock quote, or P. Compare Po and P...

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Compare Po and P. Do you see any differences? Can you explain what factors may be at work for such a difference in the two prices? a. P = $76.28 P0 = $82.88 b. Due to the Constant Growth Model's sensitivity to the discount rate, dividend growth rate and the expected dividend value, any error in estimating these values may give us values for share price, which is very different from the actual share price...

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