Pfizer Inc., a biopharmaceutical company, discovers, develops, manufactures, and sells healthcare products worldwide. Pfizers stock trades on the New York Stock Exchange under the symbol PFE.

a.You are asked to apply the constant growth model to assess whether you should purchase Pfizer stock. Use the following information:

i.The analysts average estimate of growth for this year is the best estimate of growth for the life of the company is the stock. This is available at https://finance.yahoo.com/quote/PFE/analysts?p=PFE.

ii.The beta and current dividend are available at: https://finance.yahoo.com/quote/PFE?p=PFE

iii.Assume that the risk free rate is 1.5%

iv.The Required Return on the market is 10.5%

Q2a1. Which growth rate did you choose? Why?

Q2a2.What is the expected price of Pfizer based on the constant growth model?

Q2a3. Is PFE under-valued or over-valued at the 11/2/2016 price of 30.63?

Q2a4. Assume the Federal Reserve raised the discount rate and this led to an increase in the risk-free rate to 2.5%

What is your new expected price?