Inancial Management by Timothy Gallagher&Joseph Andrew/senior in college

By walking you through a set of financial data for IBM, this assignment will help you better understand how theoretical stock prices are calculated; and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (Capital Asset Pricing Model) and the Constant Growth Model (CGM) to arrive at IBMs stock price. To get started, complete the following steps.

Find an estimate of the risk-free rate of interest, krf. To obtain this value, go to Market Data [E ratio model (pp. 350-1) and the needed info found in the IBM pdf file. Explain why the present stock price is different from the price arrived at using CGM (Constant Growth Model).

To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values.

Objective: Measure risk using standard deviation and coefficient of variation.