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Valuation of Apple and Microsoft Stock using CAPM Model Finance Essay (Essay Sample)


Task: Compute the intrinsic value for Apple and microsoft stocks using the capm and the gordon growth models.
based on the calculated value and the current market price and the nasdaq stock exchange, make a recommendation of the plausibility of investing in these two stocks


FIN580: Capstone Project: Stock Valuation and CAPM for Apple and Microsoft
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FIN580: Capstone Project: Stock Valuation and CAPM for Apple and Microsoft
Compute beta of each stock using regression analysis. Use ordinary least squares regression with the market index return as the independent variable and the individual stock return as the dependent variable. Use data from 1/1/2000 - 1/1/2017.
Beta is a measure of risk of volatility of a stock compared to the volatility of the market. The volatility or risk of the market is represented by a beta coefficient of 1. Implied in this statement if that a beta of greater than 1 means that the price of a stock of more volatile compared to the volatility of the market as measured by a market index such as the S&P 500 index. A beta coefficient of 1 would mean that the stock has the same volatility as the market, whereas a beta coefficient of less than 1 implies that the underlying stock is less volatile compared to the market volatility.
For this particular case, the betas of Apple’s and Microsoft’s stocks have been calculated using the least square regression method. In this method, the returns of the market are represented by the returns of the S&P 500 index (independent variable). The regression model used the returns of each stock as the dependent variables. The specific beta outputs for each company are presented in Appendix A and B for Apple and Microsoft respectively. The following table provides a summary of beta for the two companies.
Table 1: Summary of Apple’s and Microsoft’s Beta outputs from the regression model


Apple (APPL)


Microsoft (MSFT)


Apple’s stock has beta of 1.1073 meaning that the stock is more volatile that the S&P 500 index. If the S&P 500 index were to rise by 10%, Apple’s stock would increase by 11.07%. On the other hand, Microsoft’s stock has a beta of 0.9581, implying that the stock’s price is less volatile that the S&P 500 index. If the market were to increase by 10%, Microsoft’s stock would increase by 9.58%.
Compute each stock’s required rate of return using the Capital Asset Pricing Model (CAPM) and beta from above.

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