Question: please show the calculations (without excel) You are given the following information on stock of two companies: Company A and Company B. Asset Standard deviation

please show the calculations (without excel)

You are given the following information on stock of two companies: Company A and Company B. Asset Standard deviation Beta Correlation with Stock price of returns market based on CAPM Company A 25% ?? Company B 25% 1.0 0.6 $15.79 Market 15% portfolio 0.1 Both companies, are expected to pay a dividend of $1.50 next year, and dividends are expected to stay at that level forever. Assume the risk-free rate is 4% and the market risk premium is 5.5%. a) According to CAPM what should be the price of Company A shares? (5pts) b) Is there a difference between the stock price for company A and B? If so, why? (3pts)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Problem 6: (8 marks) You are given the following information on stock of two companies: Company A and Company B. Asset Standard deviation of returns Beta Correlation with market Stock price based on...

Calculations should be displayed in an Excel sheet (upload your Excel sheet to Canvas when you are finished with the exam). Short answers or brief explanations should be clearly typed into the Excel...

Please show your work. The following information is given about options on the stock of a certain company. S0 = 23 X = 20 rc = 0.09 T = 0.5 2 = 0.15 No dividends are expected. Use this information to...

Please show all work!! The following information is given concerning options on the stock of a certain company: S = 23, E = 20, r = .09, T = 5, variance = .15, no dividends are expected. 1. What...

please show the calculations (no excel please) There are two stocks in the market, stock A and stock B. The price of stock A today is $70. The price of stock A next year will be $60 if the economy is...

1/9 SULIT/ CONFIDENTIAL BD20403 Question 1 The following information refers to two companies, BERSATU and GEMILANG Company Standard Deviation Average Return Correlation with Market Portfolio BERSATU...

Problem 1 You are given the following information about stock X and the market portfolio, M: o Riskless Asset (f) Stock X Market Portfolio (M) ET 0.04 (4%) 0.00 ? 0.30 0.10 0.20 You are not given the...

Answer all questions below. Make sure to show your work. Your answers must be typed. Let me know if you have any question. (TOTAL POINTS) Why do we need the money market? (5 points) What is the...

Ques 1: What is the major complaint by firms concerning the Sarbanes-Oxley act of 2012? A. the legislative maximum allowable compensation for a CEO. B. the legal requirement to disclose project...

Solve the following questions.. 14) You are given the following information about Stock X, Stock Y, and the market: (i) The annual effective risk-free rate is 4%. (ii) The expected return and...

Consider the following LP problem: MAX: 4X1 + 2X2 Subject to: 2X1 + 4X2 20 3X1 + 5X2 15 X1, X2 0 a. Use slack variables to rewrite this problem so that all its constraints are equal to...

Explain how Stuart Hall's concept of encoding/decoding connects cultural studies to power. In your response, be sure to (a) define encoding and decoding, and (b) identify the three types of decoding.

Which of the following is a component of the oral group report? a presentation by only one member a body to the report a feedback forum a Q

A company is preparing completing their Cash Budget. The following data has been prepared for cash receipts and payments. January February March Cash receipts $1,061,200 $1,182,400 $1,091,700 Cash...