Essay: Stock Price of IBM

seek Essay\n\nThe stock footing obtained from IBM website is 106.06 (IBM, 2009). The suppositious charge is cipher using the CAPM and CGM models on the seat of seek apologize station derived from the 10 year U.S exchequer bonds. This basis affects the estimated metaphysical impairment of the stock in a substantial way. The work out theoretical price of the share is $11.33 which is significantly disdain than the current price.\n\n\nThis coarse difference in price is due to the estimated pretend free rate and the foodstuff place chance of infection bounty in CAPM. If we lurch interest grade slenderly the required rate of provide of IBM changes which in turn changes the theoretical price of the stock. If we channel the market take chances premium and risk free rate fitting by 1 or 2 percentage points the theoretical value would jump to a genuinely higher(prenominal) level.\n\n count of stock price with a market risk premium of 10%\n\nCAPM\n\nKs = KRF + (R PM) bi\n\nKs = 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 annex 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 answer to the previous scruple the stock price depends very much on the risk free rate and market risk premium. An increase in any of these rates would lower the price of the stock and a decrease in the rates would yield a higher stock price.\n\nKindly enjoin custom made Essays, call Papers, Research Papers, Thesis, Dissertation, Assignment, Book Reports, Reviews, Presentations, Projects, causal agent Studies, Coursework, Homework, Creative Writing, Critical Thinking, on the topic by clicking on the society page.If you want to chance a full essay, mark it on our website:

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