Beta, required rate of return, and intrinsic value: You have collected the below information to determine SABIC's intrinsic vlaue - The risk-free rate (SAIBOR) is 4% - The Expected return on the Market Portfolio (TASI) is 10% - The next period dividends (D1) = SAR 5 and SABIC will distribute D1 forever. - The historical return on SABIC stock and TASI for the period from 2018 - 2021 as follows: %3D Years SABIÇ Ret TASI Ret 2021 5% 10% 2020 9% 13% 2019 5% 17% 2018 25% 19% a. SABIC's Beta is (use 2 decimals) b. SABIC's required rate of return is % (use 2 decimals) c. SABIÇ's estimated SABI¢ price (intrinsic vlaue) is SAR (use 2 decimals)
Beta, required rate of return, and intrinsic value: You have collected the below information to determine SABIC's intrinsic vlaue - The risk-free rate (SAIBOR) is 4% - The Expected return on the Market Portfolio (TASI) is 10% - The next period dividends (D1) = SAR 5 and SABIC will distribute D1 forever. - The historical return on SABIC stock and TASI for the period from 2018 - 2021 as follows: %3D Years SABIÇ Ret TASI Ret 2021 5% 10% 2020 9% 13% 2019 5% 17% 2018 25% 19% a. SABIC's Beta is (use 2 decimals) b. SABIC's required rate of return is % (use 2 decimals) c. SABIÇ's estimated SABI¢ price (intrinsic vlaue) is SAR (use 2 decimals)
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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Transcribed Image Text:Beta, required rate of return, and intrinsic value:
You have collected the below information to determine SABIC's intrinsic vlaue
- The risk-free rate (SAIBOR) is 4%
- The Expected return on the Market Portfolio (TASI) is 10%
- The next period dividends (D1) = SAR 5 and SABIC will distribute D1 forever.
- The historical return on SABIC stock and TASI for the period from 2018 - 2021 as follows:
Years
SABIÇ Ret
TASI Ret
2021
5%
10%
2020
9%
13%
2019
5%
17%
2018
25%
19%
a. SABIC's Beta is
(use 2 decimals)
% (use 2 decimals)
c. SABIÇ's estimated SABI¢ price (intrinsic vlaue) is SAR
b. SABIC's required rate of return is
(use 2 decimals)
Transcribed Image Text:ST# Stock has a beta of 1.56 and has been paying fixed amount of dividends of SAR 10 and will continue doing so forever. STO is currently selling at SAR 60. Using the
SML, what can you say about STG stock if you know that TASI average annual return over the past 4 years was 10.25%, however, the expected return of TASI is 11%.
Note that the SIABOR rate (proxy for the risk free rate) is 5%.
By how much is the stock over- or under-valued?
a. the required rate of return on common equity (rs) =
% (use 2 decimals)
b. The intrinsic value is SAR
(use 2 decimals)
b. STC stock is
A. under – valued
B. over – valued
by SAR
(use 2 decimals and ONLY absolute value)
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