Option #2: Personal Finance Application

Stock Valuation

• Use the information provided to calculate the required rate of return on four stocks. Use both CAPM and the Dividend Discount Model. The market return is expected to be 8.5% and the risk-free rate is 2.0%.

	Smith Company, Inc.	Competitor 1	Competitor 2	Competitor 3
Beta	1.4	1.7	1.2	0.9
Dividend	$2.00	$3.25	$2.00	$1.25
Price	$26.00	$33.00	$45.00	$20.00
Growth	3.5%	3.5%	5.5%	1.5%