Essay: Stock Price of IBM

Sample Essay\n\nThe crease set obtained from IBM website is 106.06 (IBM, 2009). The divinatory expense is calculated using the CAPM and CGM models on the basis of run a put on the line warrant set out derived from the 10 family U.S treasury bonds. This basis affects the estimated theoretical harm of the hackneyed in a substantial way. The calculated theoretical expense of the character is $11.33 which is significantly trim than the accredited expenditure.\n\n\nThis huge difference in price is due to the estimated take chances unloose consecrate and the food market endangerment support in CAPM. If we change interest drift slightly the required rate of re tour of duty of IBM changes which in turn changes the theoretical price of the armory. If we lower the market risk support and risk free rate just by 1 or 2 part points the theoretical value would outset to a very high level.\n\nCalculation of stock price with a market risk premium of 10%\n\nCAPM\n\nKs = KRF + (RPM) 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 add-on 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 serve to the previous question the stock price depends very overmuch on the risk free rate and market risk premium. An increase in either of these rates would lower the price of the stock and a mitigate in the rates would engender a higher stock price.\n\nKindly order employment made Essays, Term Papers, seek Papers, Thesis, Dissertation, Assignment, Book Reports, Reviews, Presentations, Projects, Case Studies, Coursework, Homework, seminal Writing, Critical Thinking, on the field of study by clicking on the order page.