Fred Alberts, Rookie by Stretcher, Robert: Michael, Timothy B

"Case 8: Fred Alberts, Rookie" by Stretcher, Robert: Michael, Timothy B

Team 3:

Alejandra Gomez - Jose L Pereyda - Luis Bonilla

Park University

Managerial Finance

MBA615

Jennifer O'Neal

February 23, 2017

Abstract

Fred Albert is inquiring on some advice on how to invest a sum of money.  His objective is to invest this amount in stocks that appear to be undervalued by the market.  Fred printed out the list of stocks and set about the task of collecting information about them.  He went to the “market data” link on the company’s website to get some information.  For each firm, he downloaded the history of dividend payments and the beta.  He also downloaded current Treasury bond rates and the rate of return on a broad market index, which he would use as an indicator of the market return.  Fred summarized the information and prepared to determine the value of the stocks according to the financial models he had studied in college.

The following information appears on Appendix Page.

1. For each stock listed, calculate the required return as indicated by the Capital Asset Pricing Model (CAPM).  See Appendix A (Exhibit 1. Top 20 Stock Picks List).
2. Calculate the Value of Each stock share using the constant growth formula.  See Appendix A (Exhibit 2. Dividend Histories and Beta).
3. Compare the values you calculated to each of the market prices for the top twenty stock picks.  Are your calculations close approximations of the market prices?  Why do you think there are differences?

There are numerous explanations behind the natural quality being unique about the market price.  To start with, a few stocks did not pay a profit so that the inborn worth equation will give back a zero quality.  Second, the five-year profit development is (the compound event rate ascertained utilizing the advantage at period – 5 to period 0) frequently brings about high numbers unless the firm seeks after a continually developing profit.  

For instance, stocks going from any real profit to zero profit will have a development rate leveling with 100%.  Third, the market sell off procedure is not liable to be a consequence of market members utilizing key profit, development, and danger measures.  For instance, the director of a probable reserve that mirrors the Nasdaq 100 must put stores in those stocks, paying little respect to the present price, or the administrator will be infringing upon the asset objective; essential data is not by any means considered.  At last, both the steady development model and the CAPM include patently unreasonable suspicions about financial specialist brain science and market progression that from time to time work out in this present reality.