III. The following stock quotation for Wells Fargo Stock ( December 1st, 2017 wh
ID: 2797920 • Letter: I
Question
III. The following stock quotation for Wells Fargo Stock ( December 1st, 2017 when market closed at 4:00 PM Eastern (WFC) reported on Friday. Wells Fargo & Company (WFC) 56.47-0.21 (-0.37%) revious Close 56.68 time NYSE close: 4:00PM EST Market Cap Beta E Ratio (TTM) EPS (TTM) Earnings Date Dividend&Yield; Ex-Dividend Date 278.073B 57.03 56.58 x1,200 56.59x 2500 56.38-57.33 1.05 14.59 3.87 Jan 12, 2018 id sk ay's Range 2 W 1.56 (2.76%) 2017-11-02 eek Range 49.27-59.99 Volume 30,984.403 Avg. Volume 17.559.459 y Target Est 57.69 (1) What was De cember 1st close price of WFC stock? How did it change from previous day (November 30)? (2) If 1, 2017. You have received dividend during this holding period. Calculate your holding period rate of return you purchased WFC stock at the 52 weeks low and sold it at close price on December (4 Currently, the 3-month T-bill interest rate is 1.3%, and required return on the stock market (5) Assume the dividend growth rate is 10%, calculate the true value and annual rate of (6) Draw a security market line (SML) using the data above. Determine the intercept (7)According to the CAPM model, will you buy WFC stock or not? Why? (35 points) (3) Show how the 2.76% yield is calculated. is 1 2.1 %. Calculate required rate of return of wFC stock using the CAPM model. return using Gordon model. and slope of the SMLExplanation / Answer
As per rules, I will answer only the first 4 sub-parts of this question.
1. The December 1st close price was $56.47. It has changed by -0.21 from 30th November at which date the price was $56.68.
2. Purchase price was 49.27. The stock was sold at 56.47. This is a gain of $7.20. Dividend was received to the amount of $1.56.
HPR = 7.2+1.56/ 49.27
= 17.78%
3. Dividend yield = Dividend/ Current share price
= 1.56/ 56.47
= 2.76%
4. Return on stock = Rf+ Beta*(Expected market return- Risk free rate)
Rf = 1.3*12/3 = 5.2%
Return on stock = 5.2%+ 1.05*(12.1%-5.2%) = 12.45%