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Please give answers to each questions with clear steps, and please writing or typing the...

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Finance

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Please give answers to each questions with clear steps, and please writing or typing the answers clearly. It's better to type the answers, many thanks! Exercise 1 You have the following information for 5 companies in a market: Company P/E ratio Annual dividend CAPM beta growth rate 5% 8 9 6 1.0 1.25 1.25 1.5 2.0 | 8% 10% 1296 Assume that all the 5 companies pay all earnings out as dividends at any time, and the Capital Asset Pricing Model holds, and the above statistics in the table will hold through infinity a) You are using a regression methodology to estimate the relationship between P/E ratios and the two variables (dividend growth rate and beta) Using a cross-sectional sample in the table, you obtain the following equation : P/E 11 + 0.5 *annual dividend growth rate (%)-6" beta. Are the signs of estimates of the two coefficients reasonable? You may apply this equation to find the fair value of a company. Which of the companies are over-valued and which are under-valued? b) Now you may use the CAPM and the constant dividend growth model to find the fair value of a company. If the risk-free rate is 3% and the expected return on the market portfolio is 10% per annum, which of the companies are over-valued and which are under-valued

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