Essay About B. Downloading Ibm Stock Information And Ibms Current Annual Dividend

Risk And Capital
Essay Preview: Risk And Capital
Report this essay
Risk and Capital
A. Find an estimate of the risk free rate of interest.
1. DJIA
10,558.03
-52.07
-0.49%
2. NASDAQ
2,177.91
-13.41
-0.61%
3. S & P 500
1,226.42
-9.44
-0.76%
4. S & P/TSX
10,550.51
-76.20
-0.72%
5. BOVESPA
26,517.92
48.02
0.18%
6. U.S. FED FUNDS
7. U.S. FED TARGET
8. CANADIAN 10 -YR BOND
9. U.S. 10 YR TREASURY
10. U.S. GDP
07/29
11. U.S. UNEMPLOYMENT
08/05
12. CANADIAN UNEMPLOYMENT
08/05
13. BRAZILIAN UNEMPLOYMENT
07/21
Information regarding the U.S. 10 yr treasury: the risk free rate is 4.39%, market risk premium is 7.5%.
B. Downloading IBM Stock Information:
1. IBMs beta (b) : 1.666 (yahoo finance website)
2. IBMs current annual dividend : year 2004 $0.70 per share (IBM website)
3. IBMs 3 yr dividend growth rate (g) (information on dividend from IBM website)
Dividend Paid
$0.70
$0.63
$0.59
$0.55
4. Industry P/E – 20.30 (Yahoo finance website)
5. IBMs EPS
Earnings per share of common stock from continuing operations assuming dilution: 2004
$4.94
$4.34
$3.07
With the information use the CAPM to calculate IBMs required rate of return or ks.
Ks = rf + risk premium *beta
= 4.39% + 7.5%*1.666 = 16.89%
Using the CGM to find the current stock price for IBM.
P0 = D1/(Ks-g)
P0 = $0.75859/ (16.89% – 8.37%)