Assignment #2 Stock Valuation

A. Choose a stock that interests you. Utilizing Bloomberg, Yahoo Finance, Google Finance, etc. as a source of data, collect the following information:

a. The stocks Beta

b. The rate of return on the market (S&P 500 Index)

c. The risk-free rate ( )

d. The last dividend paid ( )

e. The annual expected growth rate of earnings

B. In Excel, use the Discounted Dividend Model for Constant Growth Stocks and solve for the intrinsic stock price ( ) Based on your above calculations, compare the calculated price with the current market price and indicate whether is the stock price overvalued, undervalued, or at equilibrium? Explain.

C. Now, assume that your company has just released a new product and will be experiencing supernormal growth of 25% for the next three years. In Excel, use the information in A and the Discounted Dividend Model for Nonconstant Growth Stocks and solve for the intrinsic stock price ).