Reference no: EM131096827
Gloria the Investor
Gloria is a seasoned sales manager with a very large international company. Although she has a great deal of experience with sales, she has little experience with investing. Gloria has been investing in her company's 401K plan. However, she has decided to invest some extra money on her own. Gloria has $75,000 she would like to invest.
Since she has recently signed up for internet access to a broker, she is allowed a small number of phone calls to a broker at no additional charge to her.
She calls ABC investments and talks with a Mr. Bill. She tells Mr. Bill she would like to invest in undervalued stocks and can he recommend about ten stocks for her to research. Mr. Bill tells Gloria his company has about 15 stocks they believe are undervalued and will outperform the marker over time. Mr. Bill gave her the company web site where she can down load that list of stocks.
Below is a list of those stocks:
rating
|
Current Stock Price
|
Current Dividends
|
5-Year Avg. Dividend Growth
|
Current Beta
|
1
|
$12.05
|
$0.95
|
0.65
|
0.65
|
2
|
$28.02
|
$0.00
|
-100.00
|
2.3
|
3
|
$17.75
|
$0.00
|
0.00
|
1.89
|
4
|
$92.43
|
$1.30
|
6.23
|
1.2
|
5
|
$63.79
|
$0.75
|
0.95
|
1.35
|
6
|
$2.88
|
$0.00
|
-8.00
|
1.05
|
7
|
$10.00
|
$0.00
|
0.00
|
1.78
|
8
|
$49.51
|
$0.68
|
0.75
|
0.95
|
9
|
$101.00
|
$5.00
|
0.38
|
0.92
|
10
|
$39.78
|
$0.00
|
-90.00
|
1.5
|
11
|
$29.75
|
$2.00
|
2.25
|
0.85
|
12
|
$73.09
|
$0.00
|
-1.00
|
0.38
|
13
|
$20.39
|
$6.00
|
5.25
|
0.71
|
14
|
$18.25
|
$0.00
|
0.00
|
1.2
|
15
|
$7.00
|
$1.35
|
8.85
|
0.73
|
Current Treasury Bond Rate
|
4.30%
|
|
|
Average return on the Broad Market
|
11.90%
|
|
|
1. Calculate the required rate of return using the Capital Asset Pricing Model (CAPM).
2. Using the constant growth formula, calculate the value of each stock
3. Compare the values you calculated in questions 1 & 2. Do the values closely approximate the stocks market price? If not, why not?
4. What do your results mean for Gloria?
5. Are there other options Gloria might consider for valuing stocks?
6. How does your result affect the "market efficiency" theory?
Compare the market cap to your calculated value
: Compare the market cap to your calculated value. How does your intrinsic value (less debt) compare to the market cap of the company on Yahoo! Finance? What might account for any differences between these two values?
|
Example from your life of a communication error
: Please produce and explain using theory an example from your life of a communication error. How could this communication difficulty have been handled differently?
|
Negative marginal tax rate on very- high-income individuals
: Explain why it might be desirable to have a regressive tax structure, even if the social welfare function is utilitarian, when general equilibrium effects of taxes are taken into account. Would it ever be desirable to impose a negative marginal tax r..
|
Change inflationary expectations
: At times, the Federal Reserve tries to change inflationary expectations. Why would the Fed want to raise inflationary expectations? How would this strategy of raising inflationary expectations affect consumption and investment? Be sure to tie your an..
|
Calculate the required rate of return using the capm
: Calculate the required rate of return using the Capital Asset Pricing Model (CAPM). Using the constant growth formula, calculate the value of each stock.
|
Society is changing constantly-families has different point
: Society is changing constantly and families has different point of view of how to live their life or raise their kids. I think what we know so far as a family will change in the near future. There is gab between our life values, action and behavior a..
|
Impact on the civil rights movement in the us
: After watching Time-Life "History of Rock and Roll" Volumes 1 and 2 (on DVD Disc 1), describe in a few paragraphs what you found most interesting about early Rock and Roll and its impact on the Civil Rights Movement in the US.
|
Cornell law school legal information institute
: These sites offer an overview of negotiable instruments law, federal and state statutes and regulations, and federal and state court decisions. Using one of these sites, search for "negotiable instruments".
|
What was the annual real interest rate earned on investment
: The incredible shrinking $50 bill in 1957 was worth $50, but in 2007 it is worth only $6.16. What was the compounded average annual inflation rate (loss of purchasing power) during this period of time? Fifty dollars invested in teh stock market in 19..
|