The client is very interested in European stocks since he feels the weaker Euro wil be good for exports:

The client is very interested in European stocks since he feels the weaker Euro wil be good for exports:

1. Given the client’s view above, whichi stock would be the best choice out of Nestle, British Gas or Ferrari? Why?

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2. German company Volkswagen is one of their national champions. Describe the history of this company and its recent emissions scandal.

3.  Assume Rrf = 1.5% and the return on market Rm = 8%. Using the company’s current beta, calculate its required return using CAPM.

4. For D0 use Volkswagen’s last full year dividend in Euros. Assume a dividend growth rate of 3% which will stay constant into perpetuity. Value the stock using the Gordon model, using the CAPM rate of return derived in (3).

5.  Assuming the dividend grows by 5% for 3 years and 3% thereafter, value the stock again using the multi-stage DDM model, discounting the cashflows by the CAPM rate of return derived in (3).

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