BUS 102 Chapter Notes - Chapter 6: Dividend Discount Model, Capital Asset Pricing Model
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Calculate required rate of return for three stock using sml equation: Graphical representation of capital asset pricing model"s (capm) is recognized as the security market line (sml). Er = rf + [ rm rf ] * . Rm = market risk = a = 12% =12. 5: calculate fair value of three stocks using gordon growth model: Formula when growth rate of dividend is constant: D1 = next year dividend = a = rs 5. R = required rate of return = a = 11% G = growth rate of dividend = a = 4% =rs 57. 14: identify whether the stocks are undervalued or overvalued: Stock a is undervalued because its fair price is (rs. 71. 43) which is greater than its current market price which is (rs. It is available at lower rates on the market than it should be. 35. 29) which is less than its current price, so stock b is overvalued (rs.