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problem: Apple Computers announced the brand new iPod Touch after market close on September 12, which the market had no knowledge of prior to the announcement. Apple stock was closed at 195.50 dollar per share at the close on the 12th. The sales of the new iPod Touch will increase the company’s net cash flow by 1.6 dollar per share per year [or $0.40 per quarter] for the next 2 years, & zero after that. Apple stock has a beta of 1.5. Suppose the current market risk premium is 8 percent [on a quarterly basis] and the risk-free rate is 4 percent [also on a quarterly basis]. Determine the Apple’s price at 9:30 on the 13th when the market opened, if this was an efficient market?

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  • Category:- Basic Finance
  • Reference No.:- M917087

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