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Calculate the theoretical market price

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Question

Using the Dividend Growth Model and the Capital Asset Pricing Model calculate the Theoretical market price of CBA Limited's ordinary shares.

You have been provided with the following information:

Government Bonds ar currently paying 6.5% per year.

Expected returns of the Market Portfolio 12%.

CBA Company's Beta is 0.95.

The next expected unfranked dividends $0.28 per Ordinary Share with a growth rate of 9.725% per year. Ordinary Shares current Market Price $10.00 per share.

Required:

(a) Calculate the Theoretical Market Price.

(b) Compare the Theoretical Market Price with the current Market Price and advice if CBA Limited's share is worth buying and why.

Reference no: EM132318463

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