Pick a company that pays dividends, then calculate the expected growth rate of your company using the CAPM.
Once this task is complete, calculate the expected growth rate using the Constant Growth (or Gordon Growth) Model.
Please use Family Dollar - Tickler
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What company did you pick?
I am unfamiliar with the model and the tickler.
To calculate the expected growth rate of Family Dollar using the Capital Asset Pricing Model (CAPM), we first need to gather a few pieces of information:
1. Risk-Free Rate: The risk-free rate is the return on an investment with zero risk. We can use the yield on a 10-year U.S. Treasury bond as a proxy for the risk-free rate. As of today, let's assume it is 1.5%.
2. Market Return: The market return represents the average return of the overall stock market. We can use the historical average return of a broad market index, such as the S&P 500. Let's assume it is 8%.
3. Beta: Beta measures the sensitivity of a stock's returns to the overall market returns. It indicates the stock's volatility compared to the market. Let's assume Family Dollar's beta is 0.75.
Now, let's calculate the expected growth rate using the CAPM formula:
Expected Growth Rate = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Expected Growth Rate = 1.5% + 0.75 * (8% - 1.5%)
Expected Growth Rate = 1.5% + 0.75 * 6.5%
Expected Growth Rate = 1.5% + 4.875%
Expected Growth Rate = 6.375%
So, using the CAPM, the expected growth rate for Family Dollar is approximately 6.375%.
Moving on to the Constant Growth (Gordon Growth) Model, we need a few key inputs:
1. Dividend per Share: We need to find the latest annual dividend paid by Family Dollar. Let's assume it is $2.50.
2. Dividend Growth Rate: The dividend growth rate is the rate at which the company's dividends are expected to grow indefinitely. This rate should be sustainable and reasonable. Let's assume it is 4%.
Now, let's calculate the expected growth rate using the Constant Growth Model formula:
Expected Growth Rate = Dividend Growth Rate
Expected Growth Rate = 4%
Using the Constant Growth Model, the expected growth rate for Family Dollar is 4%.
Remember that these calculations are based on assumptions, and actual growth rates may vary.