Given the information below, use the CAPM to estimate the required rate of return for...
70.2K
Verified Solution
Link Copied!
Question
Accounting
Given the information below, use the CAPM to estimate the required rate of return for MSFT.
Return on the market portfolio (SPY) RSPY = 9.50% (based on 25 years of historical data); the risk free rate is Rf = 3.5% (based on L-T inflation rate of 2.50% & real return of 1.0%); USE MSFT beta estimate: b= 1.05.
(10 points)
Based on past trend, lets assume MSFT will pay a dividend of $1.64 in 2017. [NOTE: This does NOT match the ValueLine sheet estimate of $1.53 for 2017!] Therefore, for simplicity lets assume that D1 = $1.64, because it will not be fully paid until the end of Year 2017. Lets also assume that MSFT will grow its future dividends at a L-T constant rate of g = 6%. Assuming a required rate of return found in above, estimate the current value of MSFT using the Constant Growth DDM. Assume that D1 = $1.64
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
