as of September 2016. Use the stock price arbitrage equation to calculate the no-arbitrage price of each stock. Given your answer, should you buy the stock or put the money into a safe asset?
as of September 2016. Use the stock price arbitrage equation to calculate the no-arbitrage price of each stock. Given your answer, should you buy the stock or put the money into a safe asset?
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
Related questions
Question
![Question 2.
Consider the data in the table bolow, which shows the relevant data for the stocks of six firms: GE,
Apple, Bank of America, Exxon, Pfizer, and Home Depot. Rf is the risk-free rate and Ap:/p;is the
growth rate of the stock price. Additionally, the table has the actual market price of each stock (PM)
as of September 2016. Use the stock price arbitrage equation to calculate the no-arbitrage price of
each stock. Given your answer, should you buy the stock or put the money into a safe asset?
Firm
Dividend
RF
Ap:/ps
рм
GE
0.38
4.2
3.18
32.1
Apple
2.03
4.2
2.04
106.1
Bank of America
0.2
4.2
3.4
15.9
Еxxon
0.75
4.2
3
87.5
Pfizer
1.12
4.2
1.5
35.7
Home Depot
1.78
4.2
3.01
135
Source: Morningstar, Sept. 1, 2016.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb561a44c-4c03-4e28-a217-e6faca983145%2F0d9d9949-dc0c-4b43-949e-b85413fa74fa%2F5zze35_processed.png&w=3840&q=75)
Transcribed Image Text:Question 2.
Consider the data in the table bolow, which shows the relevant data for the stocks of six firms: GE,
Apple, Bank of America, Exxon, Pfizer, and Home Depot. Rf is the risk-free rate and Ap:/p;is the
growth rate of the stock price. Additionally, the table has the actual market price of each stock (PM)
as of September 2016. Use the stock price arbitrage equation to calculate the no-arbitrage price of
each stock. Given your answer, should you buy the stock or put the money into a safe asset?
Firm
Dividend
RF
Ap:/ps
рм
GE
0.38
4.2
3.18
32.1
Apple
2.03
4.2
2.04
106.1
Bank of America
0.2
4.2
3.4
15.9
Еxxon
0.75
4.2
3
87.5
Pfizer
1.12
4.2
1.5
35.7
Home Depot
1.78
4.2
3.01
135
Source: Morningstar, Sept. 1, 2016.
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