FIN301 Class Web Page, Summer ' 20
Instructor: Maggie Foley
Jacksonville University
Business
Finance Online, an interactive learning tool for the Corporate Finance
Student http://www.zenwealth.com/BusinessFinanceOnline/index.htm
Weekly SCHEDULE, LINKS, FILES and Questions
Chapter 
Coverage, HW, Supplements 
Required 
References


Chapter
1, 2 
Discussion: How to pick stocks (finviz.com) Daily earning announcement: http://www.zacks.com/earnings/earningscalendar IPO schedule: http://www.marketwatch.com/tools/ipocalendar FYI: MarketWatch Stock Game written by Maelyn
O’Connor (Thanks, Maelyn) Chapter 1: Introduction Flow
of funds describes the financial assets flowing from various sectors through
financial intermediaries for the purpose of buying physical or financial
assets. *** Household, nonfinancial business, and our government Financial
institutions facilitate exchanges of funds and financial products. ***
Building blocks of a financial system. Passing and transforming funds and risks
during transactions. ***
Buy and sell, receive and deliver, and create and underwrite financial
products. ***
The transferring of funds and risk is thus created. Capital utilization for
individual and for the whole economy is thus enhanced. Chapter 2 Introduction of Financial Market 1.
What
are the six parts of the financial markets
Money: · To pay for purchases and store wealth (fiat money, fiat currency) Financial Instruments: · To transfer resources from savers to investors and to transfer risk to those best equipped to bear it. Financial
Markets: · Buy and sell financial instruments · Channel funds from savers to investors, thereby promoting economic efficiency · Affect personal wealth and behavior of business firms. Example? Financial Institutions. · Provide access to financial markets, collect information & provide services · Financial Intermediary: Helps get funds from savers to investors Central Banks · Monitor financial Institutions and stabilize the economy Regulatory Agencies · To provide oversight for financial system. 2.
What
are the five core principals of finance
Introduction
to Capital Markets  ION Open Courseware (Video) How the stock market works (video) No homework for chapter 2 


Chapter 5 Time value of Money Time
value of money (Video) The
time value of money  German Nande (video)
Tutoring of
Time Value of Money calculation in Excel （video） Chapter
5 Homework (due on mid term in week 4 Thursday) 1.
You
deposit $5,000 in a saving account at 10% compounded annually. How much is
your first year interest? How much is your second year interest? (500, 550) 2.
What
is the future value of $5,000 invested for 3 years at 10% compounded
annually? ( 6,655) 3.
You
just bought a TV for $518.4 on credit card. You plan to pay back of $50 a month
for this credit card debt. The credit card charges you 12% of interest rate
on the monthly basis. So how long does it take to pay back your credit card
debt? (11 months) 4.
You
are going to deposit certain amount in the next four years. Your saving account
offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200. How much you can withdraw four years later? (4168.35) 5.
You
are going to deposit certain amount in the next four years. Your saving
account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200. How much is the lump sum value as of today (NPV)? (3429.31) 6.
Ten
years ago, you invested $1,000. Today it is worth $2,000. What rate of interest
did you earn? (7.18%) 7.
At
5 percent interest, how long would it take to triple your
money? (22.52) 8.
What
is the effective annual rate if a bank charges you 12 percent compounded
monthly? (12.68%) 9.
Your
father invested a lump sum 16 years ago at 8% interest for your education.
Today, that account worth $50,000.00. How much did your father deposit 16
years ago? ($14594.50) 10.
You
are borrowing $300,000 to buy a house. The terms of the mortgage call for
monthly payments for 30 years at 3% interest. What is the amount of each
payment? ($1264.81) 11.
You
deposit $200 at the beginning of each month into your saving account
every month. After two years (24 deposits total), your account value is $6,000.
Assuming monthly compounding, what is your monthly rate that the bank
provides? (1.74%) 12.
You want to buy a fancy car. For this goal,
you plan to save $5,500 per year, beginning immediately. You will make 4 deposits in an account that
pays 8% interest. Under these
assumptions, how much will you have 4 years from today? ($26,766) 13.
Citi
card is giving you a good deal. You can transfer your balance from your
current credit card to Citi new card with $50 balance transfer fee. The new
card charges at 5% a year. But your old card charges at 12% a year. Your
balance in your old card is $5,000. If you can afford to pay back to the
credit card of $250 a month. How much quicker does it take you to pay back
your debt with the new card? (Hint: for the new card, your debt =
5000+50=5050; Assume monthly compounding by credit card companies). (1.28
months) 14. Your girlfriend just won the Florida
lottery. She has the choice of
$40,000,000 today or a 20year annuity of $2,850,000, with the first payment
coming one year from today. If the mutual fund of hers provides 4% of return
each year for the next 20 years, which payment option is more attractive to
her? ($40million) 15. The Thailand Co. is considering the
purchase of some new equipment. The quote consists of a quarterly payment of
$4,740 for 10 years at 6.5 percent interest. What is the purchase price of
the equipment? ($138,617.88) 16. The condominium at the beach that you
want to buy costs $249,500. You plan to make a cash down payment of 20
percent and finance the balance over 10 years at 6.75 percent. What will be
the amount of your monthly mortgage payment? ($2,291.89) 17. Today, you are purchasing a 15year, 8
percent annuity at a cost of $70,000. The annuity will pay annual payments.
What is the amount of each payment? ($8,178.07) 18. Shannon wants to have $10,000 in an
investment account three years from now. The account will pay 0.4 percent
interest per month. If Shannon saves money every month, starting one month
from now, how much will she have to save each month? ($258.81) 19. Trevor's Tires is offering a set of 4
premium tires on sale for $450. The credit terms are 24 months at $20 per
month. What is the interest rate on this offer? (6.27 percent) 20. Top Quality Investments will pay you
$2,000 a year for 25 years in exchange for $19,000 today. What interest rate
are you earning on this annuity? (9.42 percent) 21. You have just won the lottery! You can
receive $10,000 a year for 8 years or $57,000 as a lump sum payment today.
What is the interest rate on the annuity? (8.22 percent) 22. Around Town Movers recently purchased a
new truck costing $97,000. The firm financed this purchase at 8.25 percent
interest with monthly payments of $2,379.45. How many years will it take the
firm to pay off this debt? (4.0 years) 23. Expansion, Inc. acquired an additional
business unit for $310,000. The seller agreed to accept annual payments of
$67,000 at an interest rate of 6.5 percent. How many years will it take
Expansion, Inc. to pay for this purchase? (5.68 years) 24. You want to retire early so you know you
must start saving money. Thus, you have decided to save $4,500 a year,
starting at age 25. You plan to retire as soon as you can accumulate
$500,000. If you can earn an average of 11 percent on your savings, how old
will you be when you retire? (49.74 years) 25. You just received a credit offer in an
email. The company is offering you $6,000 at 12.8 percent interest. The
monthly payment is only $110. If you accept this offer, how long will it take
you to pay off the loan? (82.17 months) 26. Fred was persuaded to open a credit card
account and now owes $5,150 on this card. Fred is not charging any additional
purchases because he wants to get this debt paid in full. The card has an APR
of 15.1 percent. How much longer will it take Fred to pay off this balance if
he makes monthly payments of $70 rather than $85? (93.04 months) 27. Bridget plans to save $150 a month,
starting today, for ten years. Jordan plans to save $175 a month for ten years,
starting one month from today. Both Bridget and Jordan expect to earn an
average return of 8 percent on their savings. At the end of the ten years,
Jordan will have approximately _____ more than Bridget. ($4,391) 28. What is the future value of weekly payments
of $25 for six years at 10 percent? ($10,673.90) 29. At the end of this month, Bryan will
start saving $80 a month for retirement through his company's retirement
plan. His employer will contribute an additional $.25 for every $1.00 that
Bryan saves. If he is employed by this firm for 25 more years and earns an
average of 11 percent on his retirement savings, how much will Bryan have in
his retirement account 25 years from now? ($157,613.33) 30. Sky Investments offers an annuity due
with semiannual payments for 10 years at 7 percent interest. The annuity
costs $90,000 today. What is the amount of each annuity payment? ($6,118.35) 31.
Mr. Jones just won a lottery prize that
will pay him $5,000 a year for thirty years. He will receive the first
payment today. If Mr. Jones can earn 5.5 percent on his money, what are his
winnings worth to him today? ($76,665.51) 
Summary of math and excel equations Math
Equations FV
= PV *(1+r)^n PV
= FV / ((1+r)^n) N
= ln(FV/PV) / ln(1+r) Rate
= (FV/PV)^{1/n} 1 Annuity:
N = ln(FV/C*r+1)/(ln(1+r)) Or
N = ln(1/(1(PV/C)*r)))/ (ln(1+r)) EAR
= (1+APR/m)^m1 APR
= (1+EAR)^(1/m)*m Excel
Formulas To get FV, use FV function. =abs(fv(rate, nper,
pmt, pv)) To get PV, use PV
function = abs(pv(rate, nper,
pmt, fv)) To get r, use rate
function =
rate(nper, pmt, pv, fv) To get number of years,
use nper function = nper(rate, pmt, pv,
fv) To
get annuity payment, use PMT function = pmt(rate, nper, pv,
fv) To
get Effective rate (EAR), use Effect function =
effect(nominal_rate, npery) To
get annual percentage rate (APR), use nominal function =
nominal(effective rate, npery) NPV NFV calculator(FYI, might be
helpful) Time Value of Money
Calculator 

Chapter
6 Risk and Return Risk
and Return in class exercise Excel file here will be provided soon Steps: In class exercise 1. Pick three stocks. Has to be the leading firm
in three different industries. 2. From finance.yahoo.com, collect stock prices
of the above firms, in the past five years Steps: ·
Goto finance.yahoo.com,
search for the company ·
Click on “Historical prices” in the left
column on the top and choose monthly stock prices. ·
Change the starting date and ending date to
“6/1/2019” and “6/1/2020”, respectively. ·
Download it to Excel ·
Delete all inputs, except “adj close” – this is
the closing price adjusted for dividend. ·
Merge the three sets of data just downloaded 3. Evaluate the performance of each stock: ·
Calculate the monthly stock returns. ·
Calculate the average return ·
Calculate standard deviation as a proxy for
risk ·
Calculate correlation among the three stocks. ·
Calculate beta. But you need to download
S&P500 index values in the past
five years from finance.yahoo.com. ·
Calculate stock
returns based on CAPM. ·
Draw SML ·
Conclusion and take
away? Effect
of Diversification Please refer to template Chapter 6 In Class Exercise(Word file here )
Chapter 6 Homework (Due
with mid Term exam in week 4 on Thursday 7/21/2020) 1)
Stock A has the following returns for various states of the economy: State
of the
Economy Probability Stock
A's Return Recession 10% 30% Below
Average 20% 2% Average 40% 10% Above
Average 20% 18% Boom 10% 40% Stock
A's expected return is? (ANSWER: 8.2%) 2)
Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/09. Bill
sold the shares on 12/31/09 for $3.45. Robotics stock has a beta of 1.9, the
riskfree rate of return is 4%, and the market risk premium is 9%. Joe's
holding period return is? (ANSWER:
15%) 3. You
own a portfolio with the following expected returns given the various states
of the economy. What is the overall portfolio expected return? (ANSWER:
9.05%) State
of
economy probability
of state of
economy rate
of return if state occurs Boom 27% 14% Normal 70% 8% Recession 3% 11% 4)
The prices for the Electric Circuit Corporation for the first quarter of 2009
are given below. The price of the stock on January 1, 2009 was
$130. Find the holding period return for an investor who purchased the stock
onJanuary 1, 2009 and sold it the last day of March 2009. (ANSWER: 2.12%) Month
End Price January $125.00 February 138.50 March 132.75 5)
Collectibles Corp. has a beta of 2.5 and a standard deviation of returns of
20%. The return on the market portfolio is 15% and the risk free rate is 4%.
What is the risk premium on the market?
(ANSWER: 11%) 6)
An investor currently holds the following portfolio: Amount Invested 8,000
shares of
Stock A $16,000 Beta = 1.3 15,000
shares of Stock B $48,000 Beta = 1.8 25,000
shares of Stock C $96,000 Beta = 2.2 The
beta for the portfolio is? (ANSWER:
1.99) 7)
Assume that you have $165,000 invested in a stock that is returning 11.50%,
$85,000 invested in a stock that is returning 22.75%, and $235,000 invested
in a stock that is returning 10.25%. What is the expected return of your
portfolio? (ANSWER: 13%) 8)
If you hold a portfolio made up of the following stocks: Investment
Value Beta Stock
A $8,000 1.5 Stock
B $10,000 1.0 Stock
C $2,000 .5 What
is the beta of the portfolio? (ANSWER:
1.15) 9. The riskfree rate of
return is 3.9 percent and the market risk premium (r_{m} –r_{f})
is 6.2 percent. What is the expected rate of return on a stock with a beta of
1.21? (ANSWER: 11.4%) 10. You own a portfolio consisting of the stocks below. Stock Percentage
of
portfolio Beta 1. 20% 1 2. 30% 0.5 3. 50% 1.6 The risk free rate is 3% and
market return is 10%. a. Calculate
the portfolio beta. (ANSWER:
1.15) b. Calculate
the expected return of your portfolio. (ANSWER: 11.05%) 11. Computing holding period return for Jazman and
Solomon for period 1 through 3 (bought in period 1 and sold in period 3).
Show the holding period returns for each company. (ANSWER: 50%, 25%) Period Jazman Solomon 1 $10 $20 2 $12 $25 3 $15 $15 12. Calculate expected return
(ANSWER:
12%)
13. Calculate the expected returns of the
following cases, respectively 1) Invest
$10,000 in Treasury bill with guaranteed return of 4%. (ANSWER: 4%) 2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment.(ANSWER: 5%) 3) Investment
$10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment.(ANSWER: 2.5%) 14. Rank the risk of the following cases, from
the least risky one the most risky one
(ANSWER: 1, 3, 2) 1) Invest
$10,000 in Treasury bill with guaranteed return of 4%. 2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment. 3) Investment
$10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment. 15. An
investor currently holds the following portfolio: Amount Invested 8,000
shares of
Stock A $10,000 Beta = 1.5 15,000
shares of Stock B $20,000 Beta = 0.8 25,000
shares of Stock C $20,000 Beta = 1.2 Calculate
the beta for the portfolio.(ANSWER:
1.1) 
Holding Period Return Calculator Two Stock Portfolio Return and
Standard Deviation Equations (FYI) stdev(array of returns) Excel
for beta used in CAPM slope(array of stock returns,
array of market returns) Portfolios – two stocks Calculator http://www.jufinance.com/portfolio/ Equations: W1 and W2 are the percentage of each stock in the
portfolio.
E[R_{2}] = the expected return on stock 2. 

Chapter 3 Financial Statement Analysis Experts Explain: Financial Statements (well
explained, video) ******* Part I: Balance Sheet and
Income Statement ************** Home Depot (Ticker in the
market: HD) reported the following information for the year ended January 30^{th},
2011 (expressed in millions). Sales: $67,977 Cost of goods sold: $44,693 Marketing, general and
administrative expenses: $15,885 Depreciation expenses:
$1,616 Interest expense: $530 Tax rate: 36.70% Number of shares
outstanding: 1,623 Dividends paid to
stockholders: $1,569. Use the above information
to try to prepare the income statement of Home Depot
for the year ended January 30^{th}, 2011 Home Depot (Ticker in the
market: HD) reported the following information for the year ended January 30^{th},
2011 (expressed in millions). Cash: $545 Accounts receivables:
$1,085 Inventories: $10625 Other current assets:
$1,224 Gross fixed assets: $38,471 Accumulated depreciation:
$13,411 Other fixed assets: $1,586 Accounts payable: $9,080 Short term notes payable:
$1,042 Long term debt: $11,114 Total common stock: $3,894 Retained earnings: $14,995 Use the above information to try to prepare the
balance sheet of Home Depot for the year ended January 30^{th}, 2011. 
http://www.jufinance.com/10k/bs http://www.jufinance.com/10k/is http://www.jufinance.com/10k/cf Ratio
Analysis (plus balance
sheet, income statement) http://www.jufinance.com/ratio 

********* Part II: Cash Flow Statement ******************

In Millions of USD (except for per share items) 
52 weeks ending 20140202 
Net Income/Starting Line 
5,385.00 
Depreciation/Depletion 
1,757.00 
Amortization 
 
Deferred Taxes 
31 
NonCash Items 
228 
Changes in Working Capital 
289 
Cash from Operating Activities 
7,628.00 
Capital Expenditures 
1,389.00 
Other Investing Cash Flow Items, Total 
118 
Cash from Investing Activities 
1,507.00 
Financing Cash Flow Items 
37 
Total Cash Dividends Paid 
2,243.00 
Issuance (Retirement) of Stock, Net 
8,305.00 
Issuance (Retirement) of Debt, Net 
3,933.00 
Cash from Financing Activities 
6,652.00 
Foreign Exchange Effects 
34 
Net Change in Cash 
565 
Cash Interest Paid, Supplemental 
639 
Cash Taxes Paid, Supplemental 
2,839.00 
Discussion:
2. What does net change in cash mean?
Now let’s learn how to calculate cash changes in each session
Source of cash
Use of Cash
Cash Flow from Operations: Five Steps
1. Add back depreciation.
2. Subtract (add) any increase (decrease) in
accounts receivable.
3. Subtract (add) any increase (decrease) in
inventory.
4. Subtract (add) any increase (decrease) in
other current assets.
5. Add (subtract) any increase (decrease) in
accounts payable and other accrued expenses
Chapter 3
HW (due with final)
1. Firm AAA just showed how it operated in the prior year.
Sales = $2,000; Cost of Goods Sold = $1,000; Depreciation
Expense = $200; Administrative Expenses = $180; Interest Expense = $30;
Marketing Expenses = $50; and Taxes = $200. Prepare income
statement
2. A firm has $2000 in current assets, $3000 in
fixed assets, $300 in accounts receivables, $300 accounts payable, and $800
in cash. What is the amount of the inventory? (hint: 900)
3. Andre's Bakery has sales of $100,000 with
costs of $50,000. Interest expense is $20,000 and depreciation is $10,000.
The tax rate is 35 percent. What is the amount of tax paid? (hint: 7000)(hint: tax = taxable
income * tax rate and taxable income = EBT)
4. Andre's
Bakery has sales of $100,000 with costs of $50,000. Interest expense is
$20,000 and depreciation is $10,000. The tax rate is 35 percent. The company
also paid $3,000 for dividend. What is the retained earning? (hint:
retained earning = net income  dividend)(hint: 10,000)
5.
Prepare cash flow statement based on
information given
Decrease
in accounts receivable $20
Increase
in inventory 10
Operating
income 100
Interest
expense 20
Increase
in accounts payable 20
Dividend 20
Decrease
in common stock 30
Decrease
in net fixed asset 10
Depreciation 10
Income
tax 15
Beginning
cash 200
Cash
Flow Statement Answer 
calculation for changes 

Cash
at the beginning of the year 
2060 

Cash from operation 

net
income 
3843 

plus
depreciation 
1760 

/+ AR

807 
807 

/+ Inventory 
3132 
3132 

+/ AP 
1134 
1134 

net change in cash from operation 
2798 

Cash from investment 

/+ (NFA+depreciation) 
1680 
1680 

net change in cash from investment 
1680 

Cash from finaning 

+/ long term debt 
1700 
1700 

+/ common stock 
2500 
2500 

 dividend 
6375 
6375 

net change in cash from investment 
2175 

Total net change of cash 
1057 

Cash at the end of the year 
1003 
(The excel file of the above cash flow statement is here)
More exercises
of chapter 3 (word file here)
More exercise
Prepare cash flow statement based on information
given
Increase in accounts receivable $20
Decrease in inventory 10
Operating income 120
Interest expense 20
Decrease in accounts payable 20
Dividend 10
Increase in common stock 30
Increase in net fixed asset 10
Depreciation 5
Income tax 10
Beginning cash 100
Chapter 4: Ratio Analysis
Stock screening tools
FINVIZ.com
http://finviz.com/screener.ashx
We
will focus on the following several ratios:
P/E (price
per share/earning per share, P/E < 15, a bargain)
PEG (PE
ratio / growth rate. PEG<1, undervalued stock)
EPS (earning
per share)
ROA (Return
on Asset = NI/TA, ROA>10% should be a nice benchmark)
ROE (return
on equity = NI/TE, ROE>15% should be good)
Current
ratio (liquidity measure. = CA/CL, has to be greater than one)
Quick
ratio (liquidity measure. = (CAInventory)/CL, has to be greater
than one)
Debt
Ratio (Leverage measure. = TD/TA, need to be optimal, usually
between 30% and 40%)
Gross
margin (profit measure. = EBITDA/sales, or = Gross margin/sales, has
to be positive)
Operating
margin (profit measure. = EBIT/sales, or = operating income/sales,
has to be positive)
Net
profit margin (profit measure. = NI/sales, has to be positive)
Payout
ratio (= dividend / NI, measures distribution to shareholders. No
preferences. Usually value stocks have high payout ratio; Growth stocks have
low payout ratio).
Nike  Valuation 

P/E Current 
70.74 
P/E Ratio (w/o extraordinary items) 
61.37 
Price to Sales Ratio 
3.28 
Price to Book Ratio 
11.72 
Price to Cash Flow Ratio 
24.04 
Enterprise Value to EBITDA 
25.71 
Enterprise Value to Sales 
3.62 
Total Debt to Enterprise Value 
0.03 
Efficiency 

Revenue/Employee 
497,442.00 
Income Per Employee 
26,443.00 
Receivables Turnover 
10.14 
Total Asset Turnover 
1.59 
Liquidity 

Current Ratio 
2.51 
Quick Ratio 
1.63 
Cash Ratio 
0.87 
Profitability 

Gross Margin 
44.03 
Operating Margin 
12.38 
Pretax Margin 
11.89 
Net Margin 
5.32 
Return on Assets 
8.44 
Return on Equity 
17.4 
Return on Total Capital 
30.17 
Return on Invested Capital 
13.26 
Capital Structure 

Total Debt to Total Equity 
38.83 
Total Debt to Total Capital 
27.97 
Total Debt to Total Assets 
16.91 
LongTerm Debt to Equity 
35.34 
LongTerm Debt to Total Capital 
25.46 
No
homework for chapter 4
Valuation 

P/E Current 
5.55 
P/E Ratio (with extraordinary items) 
6.59 
Price to Sales Ratio 
0.89 
Price to Book Ratio 
3.47 
Enterprise Value to EBITDA 
10.29 
Enterprise Value to Sales 
0.83 
Total Debt to Enterprise Value 
0.14 
Efficiency 

Revenue/Employee 
926,741.00 
Income Per Employee 
143,655.00 
Receivables Turnover 
8.5 
Total Asset Turnover 
1.33 
Liquidity 

Current Ratio 
1.55 
Quick Ratio 
1.14 
Cash Ratio 
0.67 
Profitability 

Gross Margin 
34.86 
Operating Margin 
11.37 
Pretax Margin 
14.95 
Net Margin 
15.5 
Return on Assets 
20.63 
Return on Equity 
49.05 
Return on Total Capital 
30.64 
Return on Invested Capital 
41.77 
Capital Structure 

Total Debt to Total Equity 
43.54 
Total Debt to Total Capital 
30.33 
Total Debt to Total Assets 
15.3 
LongTerm Debt to Equity 
43.54 
LongTerm Debt to Total Capital 
30.33 
Chapter 7 Bond pricing
Simplified Balance Sheet of WalMart
In Millions of USD 
As
of 20190131 
Total Assets 
219,295,000 
Total Current Liabilities 
77,477,000 
Long Term Debt 
43,520,000 
Total Liabilities 
139,661,000 
Total Equity 
72,496,000 
Total Liabilities & Shareholders' Equity 
219,295,000 
For discussion:
· What is this “long term debt”?
· Who is the lender of this “long term debt”?
So this long term debt is called bond in the financial
market. Where can you find the pricing information and other specifications
of the bond issued by WMT?
Investing Basics: Bonds(video)
FINRA
– Bond market information
http://finramarkets.morningstar.com/BondCenter/Default.jsp
Chapter 7 Study guide
1. Go to http://finramarkets.morningstar.com/BondCenter/Default.jsp , the bond market data website of FINRA to find bond information.
For example, find bond sponsored by Walmart
Or, just go to www.finra.org, č Investor center č market data č bond č corporate bond
Corporate
Bond






ratings 
last sale 

Issuer Name 
Symbol 
Callable 
SubProduct Type 
Coupon 
Maturity 
Moody's® 
S&P 
Price 
Yield 
WMT.GP 
Corporate Bond 
7.55 
2/15/2030 
Aa2 
AA 
157.119 
1.196 

WMT.GP 
Corporate Bond 
6.75 
10/15/2023 
Aa2 
AA 
119.600 
0.585 

WMT.GP 
Corporate Bond 
5.25 
9/1/2035 
Aa2 
AA 
148.571 
1.610 

WMT.IA 
Corporate Bond 
5.875 
4/5/2027 
Aa2 
AA 
129.394 
1.270 

WMT.IC 
No 
Corporate Bond 
6.5 
8/15/2037 
Aa2 
AA 
166.969 
1.866 

WMT4117477 
Yes 
Corporate Bond 
3.3 
4/22/2024 
Aa2 
AA 
109.094 
0.464 
2. 2.
Understand what is coupon, coupon rate, yield, yield to maturity, market
price, par value, maturity, annual bond, semiannual bond, current yield.
3. 3.
Understand how to price bond
Bond price = abs(pv(yield,
maturity, coupon, 1000))  annual
coupon
Bond price = abs(pv(yield/2,
maturity*2, coupon/2, 1000))  semiannual coupon
Also change the yield and
observe the price changes. Summarize the price change pattern and draw a
graph to demonstrate your findings.
Again, when yield to
maturity of this semi_annual coupon bond is 3%, how should
this WMT bond sell for?
4. Understand
how to calculate bond returns
Yield to maturity =
rate(maturity, coupon, market price, 1000) – annual coupon
Yield to maturity =
rate(maturity*2, coupon/2, market price, 1000)*2 – semiannual
coupon
For example, when the annual
coupon bond is selling for $1,200, what is its return to investors?
For example, when the semiannual
coupon bond is selling for $1,200, what is its return to investors?
5. Current
yield: For the above bond, calculate current yield.
6. Zero
coupon bond: coupon=0 and treat it as semiannual coupon bond.
Example: A ten year zero coupon bond is selling for $400. How
much is its yield to maturity?
A ten year zero coupon
bond’s yield to maturity is 10%. How much is its price?
7. Understand
what is bond rating and how to read those ratings. (based on z
score. What is z score?)
a. Who
are Moody, S&P and Fitch?
b. What
is IBM’s rating?
c. Is
the rating for IBM the highest?
d. Who
earned the highest rating?
Chapter 7 Home Work
(due with final)
1. IBM
5 year 2% annual coupon bond is selling for $950. How much
this IBM bond’s YTM? 3.09%
2. IBM
10 year 4% semi_annual coupon bond is selling for $950. How
much is this IBM bond’s YTM? 4.63%
3. IBM
10 year 5% annual coupon bond offers 8% of return. How much
is the price of this bond? 798.7
4. IBM
5 year 5% semiannual coupon bond offers 8% of return. How
much is the price of this bond? $878.34
5. IBM
20 year zero coupon bond offers 8% return. How much is the price of this
bond? 208.29
6. Collingwood
Homes has a bond issue outstanding that pays an 8.5 percent coupon and
matures in 18.5 years. The bonds have a par value of $1,000 and a market
price of $964.20. Interest is paid semiannually. What is the yield to
maturity? 8.9%
7. Grand
Adventure Properties offers a 9.5 percent coupon bond with annual payments.
The yield to maturity is 11.2 percent and the maturity date is 11 years from
today. What is the market price of this bond if the face value is
$1,000? 895
8. The
zero coupon bonds of D&L Movers have a market price of $319.24, a face
value of $1,000, and a yield to maturity of 9.17 percent. How many years is
it until these bonds mature? 12.73 years
9. A
zero coupon bond with a face value of $1,000 is issued with an initial price
of $212.56. The bond matures in 25 years. What is the implicit interest, in
dollars, for the first year of the bond's life? 6.29%
10. The bonds issued by Stainless Tubs
bear a 6 percent coupon, payable semiannually. The bonds mature
in 11 years and have a $1,000 face value. Currently, the bonds sell for $989.
What is the yield to maturity? 6.14%
Summary of bond pricing EXCEL functions
To calculate bond price (annual coupon bond):
Price=abs(pv(yield to maturity, years left to maturity,
coupon rate*1000, 1000)
To calculate yield to maturity (annual coupon
bond)::
Yield to maturity = rate(years left to
maturity, coupon rate *1000, price, 1000)
To calculate bond price (semiannual
coupon bond):
Price=abs(pv(yield to maturity/2, years
left to maturity*2, coupon rate*1000/2, 1000)
To calculate yield to maturity (semiannual
coupon bond):
Yield to maturity = rate(years left to
maturity*2, coupon rate *1000/2, price, 1000)*2
To calculate number of years left(annual coupon
bond)
Number of years =nper(yield to
maturity, coupon rate*1000, price, 1000)
To calculate number of years left(semiannual
coupon bond)
Number of years =nper(yield to
maturity/2, coupon rate*1000/2, price, 1000)/2
To calculate coupon (annual coupon bond)
Coupon = pmt(yield to maturity, number of
years left, price, 1000)
Coupon rate = coupon / 1000
To calculate coupon (semiannual coupon bond)
Coupon = pmt(yield to maturity/2, number of
years left*2, price, 1000)*2
Coupon rate = coupon / 1000
Math Formula (FYI)
C: Coupon, M: Par, $1,000; i: Yield to maturity; n:
years left to maturity
For Semiannual, F=2 for semiannual coupon
M: Par, $1,000; i:
Yield to maturity; n: years left to maturity
Chapter 8 Stock Valuation
WalMart
Dividend History
Date Dividends
5/7/2020 0.54
3/15/2020 0.54
12/5/2019 0.53
8/08/2019 
0.53 
9/05/2019 
0.53 
14/03/2019 
0.53 
6/12/2018 
0.52 
9/08/2018 
0.52 
10/05/2018 
0.52 
8/03/2018 
0.52 
7/12/2017 
0.51 
9/08/2017 
0.51 
10/05/2017 
0.51 
8/03/2017 
0.51 
7/12/2016 
0.5 
10/08/2016 
0.5 
11/05/2016 
0.5 
9/03/2016 
0.5 
2/12/2015 
0.49 
5/08/2015 
0.49 
6/05/2015 
0.49 
11/03/2015 
0.49 
3/12/2014 
0.48 
6/08/2014 
0.48 
7/05/2014 
0.48 
7/03/2014 
0.48 
4/12/2013 
0.47 
7/08/2013 
0.47 
8/05/2013 
0.47 
8/03/2013 
0.47 
For class discussion:
What
conclusions can be drawn from the above information?
Can
we figure out the stock price of WalMart based on dividend, with reasonable
assumptions?
Dividend Growth Model
Po= D1/(rg) or Po= Do*(1+g)/(rg)
R = D1/Po+g = Do*(1+g)/Po+g
D1=Do*(1+g); D2= D1*(1+g)…
Chapter 8 Study Guide
Imagine you bought 100 shares of WalMart (Ticker: WMT) a
year ago.
1. How is your holding period return in the prior year?
Price in 8/5/2019
was $105.82 and price of 8/3/2020 is$129.30
2. The
followings are from google/finance about WMT. https://finance.yahoo.com/quote/WMT?p=WMT&.tsrc=finsrch

What does each item
indicate?
3. You
own 100 shares of WMT. Are you a significant shareholder of WMT? What type of
rights you have as minor shareholders?
4. If
WMT runs into trouble, how risky is your investment in WMT? Compare with
Treasury bill investors, Treasury bond investors, WMT bond investors, Apple
stock holders, etc.
5. Doug McMillon is the
CEO of WalMart. Do you have any suggestive advices for him? How can you let
him hear from you? How much do you trust him not to abuse your investment?
Are there any ways to discipline him?
6. More
exercise about the dividend growth model.
Consider the valuation of a
common stock that paid $1.00 dividend at the end of the last year and is
expected to pay a cash dividend in the future. Dividends are expected to grow
at 10% and the investors required rate of return is 17%. How much is the
price?
7. The
current market price of stock is $90 and the stock pays dividend of $3 with a
growth rate of 5%. What is the return of this stock?
HW of chapter 8 (due with final)
1. Northern Gas
recently paid a $2.80 annual dividend on its common stock. This dividend
increases at an average rate of 3.8 percent per year. The stock is currently
selling for $26.91 a share. What is the market rate of return? (answer: 14.6%)
2. Douglass Gardens
pays an annual dividend that is expected to increase by 4.1 percent per year.
The stock commands a market rate of return of 12.6 percent and sells for
$24.90 a share. What is the expected amount of the next dividend? (answer: 2.12)
3.
IBM just paid $3.00 dividend per share to investors. The dividend growth rate
is 10%. What is the expected dividend of the next year? (answer: 3.3)
4.
You bought 1 share of HPD for $20 in May 2008 and sold it for $30 in May
2009. How much is the holding period return? (answer: 50%)
5. The current market
price of stock is $50 and the stock is expected to pay dividend of $2 with a
growth rate of 6%. How much is the expected return to stockholders? (answer: 10%)
6. The stockholder’s expected return is 8% and the stock is expected to pay
dividend of $2 with a growth rate of 4%. How much should the stock be traded
for? (answer: 50)
7. The stockholder’s expected return is 8% and the stock is expected to pay
dividend of $2 with a growth rate of 4%.
How much is the dividend expected to be three years from now? (Hint: D_{3
}= D_{2}*(1+g) = D_{1}*(1+g)^{2} )(answer: 2.16)
8. Kilsheimer
Company just paid a dividend of $5 per share. Future dividends are expected
to grow at a constant rate of 7% per year. The value of the stock is $42.80.
What is the required return of this stock?(answer: 19.5%)
9. Investors of
Creamy Custard common stock earns 15% of return. It just paid a dividend of
$6.00 and dividends are expected to grow at a rate of 6% indefinitely. What
is expected price of Creamy Custard's stock?(answer: 70.67)
10.
Douglass Gardens pays an annual dividend that is expected to increase
by 6 percent per year. The stock commands a market rate of return of 12.6
percent and sells for $24.90 a share. What is the dividend yield of this
stock? (answer: 6.6%)
Dividend growth model Calculator
(very useful)
Useful website
money.msn.com/investing
zacks.com
minyanville.com
moneychimp.com
navellier.investor.com/portfoliograder/
nasdaq.com
marketwatch.com
superstockscreener.com
gurufocus.com
portfoliomoney.com
stockconsultant.com
marketgrader.com
moderngraham.com
stockpickr.com
stockta.com
thestreet.com
askstockguru.com
quotes.wsj.com
oldschoolvalue.com
fool.com
analystratings.com
barchart.com
stock2own.com
theonlineinvestor.com
seekingalpha.com
Details
about how to derive the model mathematically (FYI)
The Gordon growth model is a simple discounted cash flow (DCF)
model which can be used to value a stock, mutual fund, or even the entire
stock market. The model is named after Myron Gordon who first published
the model in 1959.
The Gordon model assumes that a
financial security pays a periodic dividend (D) which
grows at a constant rate (g). These growing dividend payments are
assumed to continue forever. The future dividend payments are discounted at
the required rate of return (r) to find the price (P) for the stock
or fund.
Under these simple assumptions, the
price of the security is given by this equation:
In this equation, I’ve
used the “0” subscript
on the price (P) and the “1” subscript
on the dividend (D) to indicate that the price is calculated at time zero and
the dividend is the expected dividend at the end of period one. However, the
equation is commonly written with these subscripts omitted.
Obviously, the assumptions built
into this model are overly simplistic for many realworld valuation
problems. Many companies pay no dividends, and, for those that do,
we may expect changing payout ratios or growth rates as the
business matures.
Despite these
limitations, I believe spending some time experimenting with the Gordon
model can help develop intuition about the relationship between
valuation and return.
The Gordon growth model calculates the
present value of the security by summing an infinite series of discounted
dividend payments which follows the pattern shown here:
Multiplying both sides of the previous
equation by (1+g)/(1+r) gives:
We can then subtract the second equation
from the first equation to get:
Rearranging and simplifying:
Finally, we can simplify further to get
the Gordon growth model equation
dividend growth model:
Refer to http://www.calculatinginvestor.com/2011/05/18/gordongrowthmodel/
· Now let’s apply this
Dividend growth model in problem solving.
Chapter 9 WACC
For class discussion:
What is WACC?
Why is it important?
WACC increases, good or bad to stock holders?
How to apply WACC to figure out firm value?
What is DCF?
One option (if beta is given, refer to chapter
13)
Another option (if dividend is given):
WACC Formula
Discount rate to figure out the value of projects is called WACC
(weighted average cost of capital)
WACC = weight of debt * cost of debt + weight
of equity *( cost of equity)
Wd=
total debt / Total capital = total borrowed / total capital
We=
total equity/ Total capital
Cost of debt = rate(nper, coupon, (price – flotation costs),
1000)*(1tax rate)
Cost of Equity = D1/(Po – Flotation Cost) +
g
D1: Next period dividend; Po: Current stock price; g: dividend
growth rate
Note:
flotation costs = flotation percentage * price
Or if
beta is given, use CAPM model (refer to chapter 6)
Cost
of equity = risk free rate + beta *(market return – risk free rate)
Cost
of equity = risk free rate + beta * market risk premium
Discussion:
· Cheaper
to raise capital from debt market. Why? Why not 100% financing via borrowing?
· Why
tax rate cannot reduce firms’ cost of equity?
In Class Exercise
IBM financed 10m via debt coupon 5%, 10 year, price
is $950 and flotation is 7% of the price, tax 40%.
IBM financed 20m via equity. D1=$5. Po=50, g
is 5%. Flotation cost =0. So WACC?
Wd=1/3. We=2/3.
Kd = rate(10, 5%*1000, (950950*7%),
1000)*(140%) = 3.98%
Ke = 5/(50 – 0) + 5% =15%
WACC = Wd*Kd +We*Ke = 11 %
HOMEWORK
of Chapter 9 (due with final)
1. Firm AAA sold a noncallable bond now has 20
years to maturity. 9.25% annual coupon rate, paid semiannually,
sells at a price = $1,075, par = $1,000. Tax rate = 40%, calculate
after tax cost of debt (5.08%)
2. Firm AAA’s equity
condition is as follows. D_{1} = $1.25; P_{0} =
$27.50; g = 5.00%; and Flotation = 6.00% of price. Calculate cost
of equity (9.84%)
3. Firm AAA raised 10m from the capital
market. In it, 3m is from the debt market and the rest from the equity
market. Calculate WACC.
Weighted
Average Cost of Capital (WACC) Calculator (FYI)
http://www.ultimatecalculators.com/weighted_average_cost_of_capital_WACC_calculator.html
(both annual and semiannual)
WACC
calculator (annual coupon bond)
WACC calculator (semiannual coupon
bond)
(www.jufinance.com/wacc_1)
Walmart Inc (NYSE:WMT) WACC %:3% As of
Today
As of today (20200804), Walmart's weighted average cost of capital is 3%. Walmart's ROIC % is 8.56% (calculated using TTM income statement data). Walmart generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
https://www.gurufocus.com/term/wacc/WMT/WACC/Walmart%2BInc
Amazon.com Inc (NAS:AMZN) WACC %:7.98% As of
Today
As of today (20200804), Amazon.com's weighted average cost of capital is 7.98%. Amazon.com's ROIC % is 10.01% (calculated using TTM income statement data). Amazon.com generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases.
https://www.gurufocus.com/term/wacc/AMZN/WACCPercentage/Amazon.com%20Inc
Apple Inc (NAS:AAPL) WACC %:7.1% As of
Today
As of today (20200804), Apple's weighted average cost of
capital is 7.1%. Apple's ROIC % is 24.02% (calculated using TTM income statement data). Apple
generates higher returns on investment than it costs the company to raise the
capital needed for that investment. It is earning excess returns. A firm that
expects to continue generating positive excess returns on new investments in
the future will see its value increase as growth increases.
https://www.gurufocus.com/term/wacc/AAPL/WACC/Apple%2Binc
Cost of Capital by Sector (US)
Date
of Analysis:
Data used is as of January 2019
Industry Name 
Number of Firms 
Beta 
Cost of Equity 
E/(D+E) 
Std Dev in Stock 
Cost of Debt 
Tax Rate 
Aftertax Cost of Debt 
D/(D+E) 
Cost of Capital 
Advertising 
48 
1.22 
9.93% 
58.46% 
66.44% 
5.43% 