<u> The stock's current</u><u> price is </u><u>53.413455.</u>
<u></u>
What is CAPM ?
- The capital asset pricing model (CAPM) is an idealized portrayal of how financial markets price securities and thereby determine expected returns on capital investments.
- The model provides a methodology for quantifying risk and translating that risk into estimates of expected return on equity.
The capital asset pricing model (CAPM) to know the value of the stock
![Ke = rf + \beta ( r_{m} - r_{f} )](https://tex.z-dn.net/?f=Ke%20%3D%20rf%20%2B%20%5Cbeta%20%28%20r_%7Bm%7D%20-%20r_%7Bf%7D%20%29)
risk free = 0.085
premium market =(market rate - risk free) = 0.045
beta(non diversifiable risk) 1.3
Ke = 0.085 + 1.3(0.045)
Ke = 0.14350
Now we need to know the present value of the future dividends:
D0 = 2.8
D1 = D0 × ( 1 +g ) = 2.8 = 2.8 * 1.23 = 3.444
D2 3.444 x 1.23 = 4.2361200
The next dividends, which are at perpetuity will we solve using the dividned grow model
![\frac{divends}{return - growth} = Intrinsic value](https://tex.z-dn.net/?f=%5Cfrac%7Bdivends%7D%7Breturn%20-%20growth%7D%20%20%3D%20Intrinsic%20value)
In this case dividends will be:
4.23612 x 1.07 = 4.5326484
return will be how return given by CAPM and g = 7%
plug this into the Dividend grow model.
![\frac{4.5326484}{0.1435 - 0.07} = Intrinsic value](https://tex.z-dn.net/?f=%5Cfrac%7B4.5326484%7D%7B0.1435%20-%200.07%7D%20%20%3D%20Intrinsic%20value)
value of the dividends at perpetity: 61.6686857
Finally is important to note this values are calculate in their current year. We must bring them to present day using the present value of a lump sum:
![\frac{principal}{(1 + rate)^{time} } = PV](https://tex.z-dn.net/?f=%5Cfrac%7Bprincipal%7D%7B%281%20%2B%20rate%29%5E%7Btime%7D%20%7D%20%3D%20PV)
![\frac{3.444}{(1 + 1. 1435)^{1} } =PV](https://tex.z-dn.net/?f=%5Cfrac%7B3.444%7D%7B%281%20%2B%201.%201435%29%5E%7B1%7D%20%7D%20%3DPV)
3.011805859
![\frac{4.23612}{( 1 + 0.1435)^{2} } = PV](https://tex.z-dn.net/?f=%5Cfrac%7B4.23612%7D%7B%28%201%20%2B%200.1435%29%5E%7B2%7D%20%7D%20%3D%20PV)
3.239633762
![\frac{61.6686857}{(1 + 0.1435)^{2} } = PV](https://tex.z-dn.net/?f=%5Cfrac%7B61.6686857%7D%7B%281%20%2B%200.1435%29%5E%7B2%7D%20%7D%20%3D%20PV)
47.16201531
We add them and get the value of the stock is 53.413455.
Learn more about CAPM
brainly.com/question/17154996
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