Closing Price of Wal-Mart on 1st of February 2020 was $ 107.68 and the most recent Dividend paid out by Wal-Mart was 53 cents. Use average return on Wal-Mart over January 2015 to January 2020 as the expected return on Wal-Mart. (Required data given as image) a. Using the Gordon Growth model with Constant growth, estimate the expected long-term growth in Wal-Mart dividend (g).
a.1: g in Gordon growth model can be interpreted as Capital gains. Using the above g, estimate the expected price of Wal-Mart on December 01, 2020. a.2: The price of Wal-Mart on December 01, 2020 was $153.60. How does your estimate in 6(a.1) compare with the actual price? a.3: Why was your estimate different? Was your analysis incorrect? (Elaborate Briefly)
b. Use average return on S&P 500 as the expected return on the market, use the average t-bill return as rf. Estimate the expected return on Wal-Mart stock, assuming CAPM is the correct model.
c. Using the expected return in 6(b), assuming a constant dividend model, estimate the fair price of Wal-Mart on 1st of February, 2020. Assuming CAPM is the right model, was Wal-Mart over valued or undervalued on the 1st of February, 2020?
Date S&P 500 level Price of WMT (GS1M) 1 - Month Treasury Constant Maturity Rate, Monthly, Not Seasonally Adjusted (Frequency: Monthly) Percent, 2018-02-01 2018-03-01 2018-04-01 2018-05-01 2018-06-01 2018-07-01 2018-08-01 2018-09-01 2018-10-01 2018-11-01 2018-12-01 2019-01-01 2019-02-01 2019-03-01 2019-04-01 2019-05-01 2019-06-01 2019-07-01 2019-08-01 2019-09-01 2019-10-01 2019-11-01 2019-12-01 2020-01-01 2020-02-01 2713.8301 90.0100 0.0138 2640.8701 88.9700 0.0164 2648.0500 88.4600 0.0166 2705.2700 82.5400 0.0171 2718.3701 85.6500 0.0181 2816.2900 89.2300 0.0189 2901.5200 95.8600 0.0194 2913.9800 93.9100 0.0204 2711.7400 | 100.2800 0.0217 2760.1699 97.6500 0.0224 2506.850193.1500 0.0237 2704.1001 95.8300 0.0240 2784.4900 98.9900 0.0243 2834.3999 97.5300 0.0245 2945.8301 102.84000.0243 2752.0601 101.4400 0.0240 2941.7600 110.4900 | 0.0222 2980.3799110.3800 0.0215 2926.4600 114.26000.0207 2976.7400 118.68000.0199 3037.5601 119.1000 0.0173 3140.9800 119.0900 0.0158 3230.7800 118.8400 0.0155 3225.5200 114.4900 0.0153 2954.2200 107.68000.0158 2015-01-01 2015-02-01 2015-03-01 2015-04-01 2015-05-01 2015-06-01 2015-07-01 2015-08-01 2015-09-01 2015-10-01 2015-11-01 2015-12-01 2016-01-01 2016-02-01 2016-03-01 2016-04-01 2016-05-01 2016-06-01 2016-07-01 2016-08-01 2016-09-01 2016-10-01 2016-11-01 2016-12-01 2017-01-01 2017-02-01 2017-03-01 2017-04-01 2017-05-01 2017-06-01 2017-07-01 2017-08-01 2017-09-01 2017-10-01 2017-11-01 2017-12-01 2018-01-01 1994.9900 84.9800 2104.5000 83.9300 2067.8899 82.2500 2085.5100 78.0500 2107.3899 74.2700 2063.1101 | 70.9300 2103.8401 71.9800 1972.1801 64.7300 1920.0300 64.8400 2079.3601 57.2400 2080.4099 58.8400 2043.9399 61.3000 1940.240066.3600 1932.2300 66.3400 2059.7400 68.4900 2065.3000 66.8700 2096.9500 70.7800 2098.860173.0200 2173.6001 | 72.9700 2170.9500 | 71.4400 2168.2700 | 72.1200 2126.1499 70.0200 2198.8101 70.4300 2238.8301 69.1200 2278.8701 | 66.7400 2363.6399 | 70.9300 2362.7200 72.0800 2384.2000 75.1800 2411.8000 78.6000 2423.4099 75.6800 2470.3000 79.9900 2471.6499 | 78.0700 2519.3601 | 78.1400 2575.2600 | 87.3100 2584.8401 97.2300 2673.6101 98.7500 2823.8101 106.6000 0.0002 0.0002 0.0002 0.0002 0.0001 0.0001 0.0003 0.0004 0.0001 0.0001 0.0007 0.0017 0.0023 0.0026 0.0025 0.0019 0.0023 0.0022 0.0026 0.0026 0.0019 0.0024 0.0030 0.0042 0.0050 0.0048 0.0066 0.0075 0.0073 0.0084 0.0097 0.0098 0.0099 0.0100 0.0109 0.0120 0.0130 Date S&P 500 level Price of WMT (GS1M) 1 - Month Treasury Constant Maturity Rate, Monthly, Not Seasonally Adjusted (Frequency: Monthly) Percent, 2018-02-01 2018-03-01 2018-04-01 2018-05-01 2018-06-01 2018-07-01 2018-08-01 2018-09-01 2018-10-01 2018-11-01 2018-12-01 2019-01-01 2019-02-01 2019-03-01 2019-04-01 2019-05-01 2019-06-01 2019-07-01 2019-08-01 2019-09-01 2019-10-01 2019-11-01 2019-12-01 2020-01-01 2020-02-01 2713.8301 90.0100 0.0138 2640.8701 88.9700 0.0164 2648.0500 88.4600 0.0166 2705.2700 82.5400 0.0171 2718.3701 85.6500 0.0181 2816.2900 89.2300 0.0189 2901.5200 95.8600 0.0194 2913.9800 93.9100 0.0204 2711.7400 | 100.2800 0.0217 2760.1699 97.6500 0.0224 2506.850193.1500 0.0237 2704.1001 95.8300 0.0240 2784.4900 98.9900 0.0243 2834.3999 97.5300 0.0245 2945.8301 102.84000.0243 2752.0601 101.4400 0.0240 2941.7600 110.4900 | 0.0222 2980.3799110.3800 0.0215 2926.4600 114.26000.0207 2976.7400 118.68000.0199 3037.5601 119.1000 0.0173 3140.9800 119.0900 0.0158 3230.7800 118.8400 0.0155 3225.5200 114.4900 0.0153 2954.2200 107.68000.0158 2015-01-01 2015-02-01 2015-03-01 2015-04-01 2015-05-01 2015-06-01 2015-07-01 2015-08-01 2015-09-01 2015-10-01 2015-11-01 2015-12-01 2016-01-01 2016-02-01 2016-03-01 2016-04-01 2016-05-01 2016-06-01 2016-07-01 2016-08-01 2016-09-01 2016-10-01 2016-11-01 2016-12-01 2017-01-01 2017-02-01 2017-03-01 2017-04-01 2017-05-01 2017-06-01 2017-07-01 2017-08-01 2017-09-01 2017-10-01 2017-11-01 2017-12-01 2018-01-01 1994.9900 84.9800 2104.5000 83.9300 2067.8899 82.2500 2085.5100 78.0500 2107.3899 74.2700 2063.1101 | 70.9300 2103.8401 71.9800 1972.1801 64.7300 1920.0300 64.8400 2079.3601 57.2400 2080.4099 58.8400 2043.9399 61.3000 1940.240066.3600 1932.2300 66.3400 2059.7400 68.4900 2065.3000 66.8700 2096.9500 70.7800 2098.860173.0200 2173.6001 | 72.9700 2170.9500 | 71.4400 2168.2700 | 72.1200 2126.1499 70.0200 2198.8101 70.4300 2238.8301 69.1200 2278.8701 | 66.7400 2363.6399 | 70.9300 2362.7200 72.0800 2384.2000 75.1800 2411.8000 78.6000 2423.4099 75.6800 2470.3000 79.9900 2471.6499 | 78.0700 2519.3601 | 78.1400 2575.2600 | 87.3100 2584.8401 97.2300 2673.6101 98.7500 2823.8101 106.6000 0.0002 0.0002 0.0002 0.0002 0.0001 0.0001 0.0003 0.0004 0.0001 0.0001 0.0007 0.0017 0.0023 0.0026 0.0025 0.0019 0.0023 0.0022 0.0026 0.0026 0.0019 0.0024 0.0030 0.0042 0.0050 0.0048 0.0066 0.0075 0.0073 0.0084 0.0097 0.0098 0.0099 0.0100 0.0109 0.0120 0.0130
