Practical Exercise: Stock Analysis
The purpose of this project is to familiarize you with the stock market. Using publically available data from msn, and corporate websites this project will guide you through basic stock analysis based on the Gordon Growth and CAPM models. In order to "get a feel for" this process you will evaluate the performance of 3 firms. Based on your analysis you will recommend "the best" for investment.
1. Choose your stocks:
2. Gather your dividend information and calculate ANNUAL g:
This will be different for each firm because you will have to go to the corporate website to gather the data.
3. Calculate the required rate of return (r) on your stock using CAPM:
- Use the current 52 week T-bill return of .225% to proxy for your first free return
- Use the current annual S&P 500 return of 9.29% to proxy for the market return
4. Calculate the stock price using the Gordon Growth model.
5. Analyses your results:
- How do your calculated stock prices compare to the company's current stock prices?
What do you think is causing them to deviate? This will require you to investigate a little into your stock.
- Of the three stocks you evaluated, which if any would you invest in? Why?