Address the limitations of traditional methods such as CAPM (Capital Asset Pricing Model) and Discounted Cash Flow Analysis in valuing a company's stock price in non - stationary market conditions. Particularly, discuss the consistency of the beta coefficient in determining the cost of capital and the selection of the risk - free rate. Also, evaluate how these traditional models can or
Address the limitations of traditional methods such as CAPM (Capital Asset Pricing Model) and Discounted Cash Flow Analysis in valuing a company's stock price in non - stationary market conditions. Particularly, discuss the consistency of the beta coefficient in determining the cost of capital and the selection of the risk - free rate. Also, evaluate how these traditional models can or
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
"Address the limitations of traditional methods such as CAPM (
Discounted Cash Flow Analysis in valuing a company's stock price in non - stationary market
conditions. Particularly, discuss the consistency of the beta coefficient in determining the cost of
capital and the selection of the risk - free rate. Also, evaluate how these traditional models can or
cannot integrate non-financial factors (e. g., company management, brand value, industry trends).
Lastly, discuss the alternative models used in stock valuation and the advantages and disadvantages
of these models compared to traditional methods."
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