Company Data

FIN 488 Make-up Exam due on Friday at  4pm.


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Is the Price Right?

  1. For company data, visit YAHOO! Finance (or any other financial database such as Mergent Online).


  1. Choose a company that pays dividends and retrieve the monthly stock prices from 1/15/2010 to 1/15/2020.


  1. Compute the Required Rate of Return (rs) using the CAPM


Step 1: Find the risk-free rate

  • From any database, research articles, text books, or internet e.g.


Step 2: Compute beta

  • Using regression analysis
  • Use SP500 or Dow Jones as the market portfolio


Step 3: Research past articles to get the market return or market risk premium  (rm – rf )

  • Use the text, research articles, or internet e.g.


d).  Using the required return from CAPM above, compute the intrinsic stock price using the Gordon Growth Model:

P0  = D1 / (rs –g)

= D0 (1 +g)/(rs –g)


Steps to compute growth

Get dividends from yahoo Finance

Add up dividends for each year

Calculate the annual percentage change in dividends using the formula:


= (Ending Dividend – Beginning Dividend) / Beginning Dividend



= (2011 Dividend – 2010 Dividend) / 2010 Dividend


The average of the percentage changes in dividends is the growth rate


Steps to compute D1

The total dividends for 2019 is D0

D1  = D0 (1 + g)


Steps to compute the intrinsic value

Put the variables in the formula to find P0

P0  = D1 / (rs –g)


e).  Determine whether the stock is over-valued or under-valued?

Compare the computed stock price (intrinsic value) to the current market price on

Yahoo! Finance

If the intrinsic value > listed stock price, the stock is undervalued

If the intrinsic value < listed stock price, the stock is overvalued


f).  Make your recommendations to investors whether to buy, sell or hold the stock.



  1. Excel file with all the data and calculation
  2. WORD document with your recommendations and an explanation of both models

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