a) International Business Machine (IBM) stock currently (2015) pays $1.30 per share quarterly dividend (the dividend was $0.50 per share in 2008). Assuming constant growth, what is the growth rate on the IBM stock dividend? b) Find the beta for IBM stock, and the current interest rate on 6-month T-bill. c) For the past 5 years, the Dow Jones Industrial Average went from 12,380.05 to 17,576.96. Assume it represents the expected return for the market portfolio, calculated the expected return for IBM stock based on CAPM? d) Based the closing price of IBM stock on 4/08/16, what is the yield of IBM stock? Is this stock over-priced or underpriced?

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Sixta KovacekLv2

30 Apr 2018

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a) Caterpillar Inc. (CAT) stock currently (2015) pays $0.77 per share quarterly dividend (the dividend was $0.42 per share in 2008). Assuming constant growth, what is the growth rate on the CAT stock dividend?

b) Find the beta for CAT stock, and the current interest rate on 6-month T-bill.

c)For the past 5 years, the Dow Jones Industrial Average went from 12,380.05 to 17,576.96. Assume it represents the expected return for the market portfolio, calculated the expected return for CAT stock based on CAPM?

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cyanelk22

PLEASE SHOW ALL FORMULAS:

Facts:
The Current risk free rate is			10.0%
Market is providing a return of			15.0%
Beta of			1.30

Recent History of Dividends per share:
Expect to pay dividend per share next year of			3.18

Year	Dividend
2015	2.94
2014	2.75					Calculator
2013	2.48				Input	Function
2012	2.36					PV
2011	2.14					FV
2010	2.00					N
A) Calculate the constant growth rate:
Average annual growth rate in percent				Solve for I	=

Do parts B, C and D, using the Capital Asset Pricing Model (CAPM):

B) Determine the maximum cash price should pay for each share
		CAPM =
P = D / (r - g)		P = D / (r - g)			$ -
D (Per Share Dividend) Expected		D (Dividend) =
r (Required Return)		r (CAPM Rate) =
g (Growth rate)		g (Growth rate) =

C) Determine the effect on stock price if a 3% higher growth rate than shown in history.
		CAPM =
P = D / (r - g)		P = D / (r - g)			$ -
D (Per Share Dividend) Expected		D (Dividend) =
r (Required Return)		r (CAPM Rate) =
g (Growth rate)		g (Growth rate) =

D) If facts are same as B) above but Beta has changed to 1.0, determine max. cash price per share
		CAPM =
P = D / (r - g)		P = D / (r - g)			$ -
D (Per Share Dividend) Expected		D (Dividend) =
r (Required Return)		r (CAPM Rate) =
g (Growth rate)		g (Growth rate) =

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