Using capital asset pricing model

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A firm's stock is expected to pay a dividend of $3 per share in perpetuity. Simple Simon Securities Analysts (SSSA) has provided you with a recommendation for this security. Their analysis suggests the firm will generate returns to stockholders of 16 percent. Thus, using the Dividend Discount Model (DDM), they estimate a share value of $18.75. Using the Capital Asset Pricing Model (CAPM), you've estimated a β of 1.14 for this same firm. As a result of your research, you also know that expected returns from the market portfolio are 12 percent and the risk-free asset returns 5 percent. Based on the CAPM approach, your estimated value for a share of the firm's stock is ________ the estimate provided by SSSA. Note: this seems like you're being asked for a qualitative assessment, but you're not. You have enough information to compute a share value estimate of your own, which you can then compare to that provided by SSSA.

The answer cannot be determined from the information provided.

higher than

lower than

the same as

Reference no: EM131568705

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