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You are contemplating an investment in the stock of Apple.You know that the price of...

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Finance

You are contemplating an investment in the stock of Apple.You know that the price of apple stock is estimated using the constant-growth dividend discount model and its required return (cost of equity) is estimated using the CAPM.

Yesterday, apple paid a dividend of $3.00 per share. The dividend is expected to grow at an annual rate of 4% throughout the foreseeable future. Apples trailing P/E ratio is 18, its debt/equity ratio is 1.25, and its bonds are rated BB. The yield to maturity (cost of debt) for the bonds of Apple is 8% (which represents a 500 basis point spread over the risk-free rate). You also know that the expected market return (S&P 500) is 11%, with a standard deviation of 14%. The correlation coefficient between Apple and the market (S&P 500) is .81, the correlation between Apple and the risk-free rate is .49, and Apple's stock has a standard deviation of 18%.

Calculate the price per share of the Apple stock.

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