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Question
Using the Dividend Growth Model and the Capital Asset Pricing Model calculate the Theoretical market price of CBA Limited's ordinary shares.
You have been provided with the following information:
Government Bonds ar currently paying 6.5% per year.
Expected returns of the Market Portfolio 12%.
CBA Company's Beta is 0.95.
The next expected unfranked dividends $0.28 per Ordinary Share with a growth rate of 9.725% per year. Ordinary Shares current Market Price $10.00 per share.
Required:
(a) Calculate the Theoretical Market Price.
(b) Compare the Theoretical Market Price with the current Market Price and advice if CBA Limited's share is worth buying and why.
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