FIN301 Class Web Page, Fall ' 22

Instructor: Maggie Foley

Jacksonville University

The Syllabus 

CMA test PPT 1 CMA test PPT 2

Weekly SCHEDULE, LINKS, FILES and Questions

Chapter

Coverage, HW, Supplements

- Required

References

Chapter 1, 2

Marketwatch Stock Trading Game (Pass code: havefun)

Use the information and directions below to join the game.

1. URL for your game:
https://www.marketwatch.com/game/fin301-22fall

2. Password for this private game: havefun

3. Click on the 'Join Now' button to get started.

4. If you are an existing MarketWatch member, login. If you are a new user, follow the link for a Free account - it's easy!

5. Follow the instructions and start trading!

How To Win The MarketWatch Stock Market Game (youtube, FYI) – finviz example

How Short Selling Works (Short Selling for Beginners) (youtube, FYI)

Chapter 1: Introduction

ppt

Note:

Flow of funds describes the financial assets flowing from various sectors through financial intermediaries for the purpose of buying physical or financial assets.

*** Household, non-financial 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.

The factors that could cause the next financial crisis are

· Pandemic

· Global warming

· War

· Inflation

· QE

· student loan

· government debt

· tax reform

· Natural disaster

· Covid

· War between Ukraine and Russia

· College tuition

· Potential war between Tai Wan and China

· Supply chain issues

· Used car price

· ?

Why a 2022 Recession Would Be Unlike Any Other | WSJ (youtube)

Chapter 2 Introduction of Financial Market

ppt

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

• Time has value
• Risk requires compensation
• Information is the basis for decisions
• Markets determine prices and allocation resources
• Stability improves welfare

Introduction to Capital Markets - ION Open Courseware (Video)

How the stock market works (video)

No homework for chapters 1, 2

Chapter 5 Time value of Money

ppt

The time value of money - German Nande (video)

Tutoring of Time Value of Money calculation in Excel （video）

Chapter 5 in class exercise

Chapter 5 Homework (due with first mid term)

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? ($14594.52)

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? ($26,766.31)

13. 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)

14. Today, you are purchasing a 15-year, 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)

15. 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)

16. 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)

17. 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)

18. 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)

19. 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)

20. What is the future value of weekly payments of $25 for six years at 10 percent? ($10,673.90)

Summary of math and excel equations

Math Formula

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))

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)

www.jufinance.com/nfv

Time Value of Money Calculator

https://www.jufinance.com/tvm/

Chapter 3 Financial Statement Analysis

Ppt

Explaining 4 Financial Statements (youtube)

************* Introduction ***************

Let’s compare Nike with GoPro based on 10K (www.nasdaq.com)

https://www.nasdaq.com/market-activity/stocks/nke/financials

For discussion: Which company is better?

Let’s find it out by comparing stock performance between the two firms.

Nike Stock Performance (finance.yahoo.com)

What is your conclusion?

******* 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

https://www.nasdaq.com/market-activity/stocks/gpro/financials

GoPro

*

GoPro Stock performance ( finance.yahoo.com )

Balance Sheet Template

http://www.jufinance.com/10k/bs

Income Statement Template

http://www.jufinance.com/10k/is

Cash flow template

http://www.jufinance.com/10k/cf

Ratio Analysis (plus balance sheet, income statement)

https://www.jufinance.com/ratio

********* Part II: Cash Flow Statement ******************
Cash flow animation (video)

Here is the cash flow statement of home depot as of 2/2/2014.

In Millions of USD (except for per share items)	52 weeks ending 2014-02-02
Net Income/Starting Line	5,385.00
Depreciation/Depletion	1,757.00
Amortization	-
Deferred Taxes	-31
Non-Cash 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:

1.      What are the three components of cash flow statement?

2.      What does net change in cash mean?

Now let’s learn how to calculate cash changes in each session

Source of cash

• Decrease in an Asset
• Example: Selling inventories or collecting receivables provides cash
• Increase in Liability or Equity
• Example: Borrowing funds or selling stocks provides cash

Use of Cash

• Increase in an Asset
• Example: Investing in fixed assets or buying more inventories uses cash
• Decrease in Liability or Equity
• Example: Paying off a loan or buying back stock uses 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 the first mid-term)

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. A firm has net working capital of $1000. Long-term debt is $5000, total assets are $8000, and fixed assets are $5000. What is the amount of the total equity? (Hint: to find total equity, you need to calculate total debt, which is a sum of long term debt and short term debt. Short term can be found from new working capital.) (hint: 1000)

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. What is the amount of tax paid? (hint: 7000)(hint: tax = taxable income * tax rate and taxable income = EBT)

5. 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)

6. The Blue Bonnet's 2018 balance sheet showed net fixed assets of $2.2 million, and the 2019 balance sheet showed net fixed assets of $2.6 million. The company's income statement showed a depreciation expense of $1,000,000. What was the amount of the net capital spending for 2019? （$1,400,000）

7. A firm has $500 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in accounts payable, and $70 in cash. What is the amount of the current assets?  (760)

8. A firm has net working capital of $640. Total liability is $5,860. Total assets are $6,230, and fixed assets are $3,910. What is the amount of long term debt?  (4180)

9. Which one of the following is a use of cash? (answer: B)
A. decrease in accounts receivable
B. decrease in accounts payable
C. increase in common stock
D. decrease in inventory

10. A firm generated net income of $878. The depreciation expense was $40 and dividends were paid in the amount of $25. Accounts payables decreased by $13, accounts receivables increased by $20, inventory decreased by $14, and net fixed assets decreased by $8. There was no interest expense. What was the net cash flow from operating activity? (899)

11. Teddy’s Pillows has beginning net fixed assets of $480 and ending net fixed assets of $530. Assets valued at $300 were sold during the year. Depreciation was $40. What is the amount of capital spending? (90)

12. Art’s Boutique has sales of $640,000 and costs of $480,000. Interest expense is $40,000 and depreciation is $60,000. The tax rate is 34%. What is the net income? (39,600)

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) (solution)

In class exercise

1. Refer to the above table. Inventory has increased from $18,776 to $21,908. This is  ____________ of cash;

 Long term debt has increased from $9,800 to $11,500. This is ____________ of cash. 
A. use; use
B. use; source
C. source; source
D. source; use

2. 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

Why is Investment Cash flow -$15?

Assume that Net fixed assets =$10 in previous year.

Depreciation = $5 è Net fixed assets will drop by $5 due to depreciation, so net fixed assets should be $10-$5=$5, if the company has done nothing on fixed assets.

However, increase in Net Fixed Asset = $10 è net fixed assets = $10 + $10 = $20 this year.

How much has been spent on fixed assets?

$20-$5=$15 è It is a cash outflow, so -$15.

Solution: see above

Note: NI = EBIT – Interest – Tax = 120-20-10=90

Chapter 4: Ratio Analysis

Ppt

3 Minutes! Financial Ratios & Financial Ratio Analysis Explained & Financial Statement Analysis

Ratio analysis template ( https://www.jufinance.com/ratio)

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. = (CA-Inventory)/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

	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
Long-Term Debt to Equity	35.34
Long-Term Debt to Total Capital	25.46

www.marketwatch.com

In class exercise

How much is ROA in 2009? ROA in 2009? Quick Ratio? Current Ratio? Debt Ratio? Payout Ratio? Operating margin? Net profit margin?

If the company’s stock is traded at $40 per share and there are 2,000 shares outstand. How much is PE?

Homework of chapter 4 (due with first mid term exam)

1. 1 .A firm has total equity of $2000 and a debt-equity ratio of 2. What is the value of the total assets? 

2, The Co. has sales = $50 million, total assets = $30 million, and total debt = $15 million. The profit margin = 20%. What is the return on equity (ROE)?

GoPro ---

VALUATION
P/E Current	N/A
P/E Ratio (w/ extraordinary items)	3.85
P/E Ratio (w/o extraordinary items)	N/A
Price to Sales Ratio	1.38
Price to Book Ratio	5.79
Price to Cash Flow Ratio	13.16
Enterprise Value to EBITDA	41.27
Enterprise Value to Sales	1.14
Total Debt to Enterprise Value	0.24
EFFICIENCY
Revenue/Employee	$1.177M
Income Per Employeee	($88,104.00)
Receivables Turnover	5.79
Total Asset Turnover	1.13
LIQUIDITY
Current Ratio	2.12
Quick Ratio	1.75
Cash Ratio	1.25
PROFITABILITY
Gross Margin	37.31%
Operating Margin	0.63%
Pretax Margin	-6.95%
Net Margin	-7.49%
Return on Assets	-8.49%
Return on Equity	-29.71%
Return on Total Capital	1.19%
Return on Invested Capital	-14.34%
CAPITALIZATION
Total Debt to Total Equity	129.4
Total Debt to Total Capital	56.41
Total Debt to Total Assets	35.85
Long-Term Debt to Equity	125.06
Long-Term Debt to Total Capital	54.52

www.marketwatch.com

First Mid Term Exam – 9/22/2022

First Mid Term Exam Study Guide

Multiple Choice Questions (4*19=76, plus 2*5=10. Total 86 points)
1-2. Similar to homework question, given cash flows in the next four years, calculate NPV and NFV.

3. Calculate PV, given rate, years to go, and FV. 

4. Calculate FV, given rate, years to go and PV

5. Calculate rate given years to go, PV and FV

6. Calculate years left, given rate, PV and FV

7. Calculate monthly payment, given annual rate, years to go, loan amount

8. Calculate EAR given APR and number of times compounded in a year.

9. Calculate NPV given cash flows each year and rate

10. Calculate interest earned each year given initial deposit and interest rate. Similar to in class exercise.

11. Given FV, PV, and years, calculate rate.

12-15. Conceptual questions: what are the definitions of income statement, cash flow statement, balance sheet? What are the major items on balance sheet?

16. Given total equity, NWC, long term debt, total debt, calculate current debt.

17. Given total equity, NWC, long term debt, total debt, calculate total asset.

18. Given total equity, NWC, long term debt, total debt, calculate current asset.

19. A challenging question. I will leave it for you to figure it out during the test.

20-25: Choose between use of cash and source of cash given changes in  accounts receivable, for example.

Short answer question (14 points) – Similar to in class 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 6 Risk and Return

ppt

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.

We chose Tesla, Amazon, and Walmart.

· Stock Prices Raw Data, Risk, Beta, CAPM (Amazon, WalMart, Tesla, S&P500)

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 “10/1/2017” and “9/1/2022”, 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?

Topic 1 - Effect of Diversification

Conclusion: More than 25 stocks should do the trick for diversification.

Please refer to template

Topic 2 - What Is the Capital Asset Pricing Model?

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.

R_i = R_f + β_i * (R_m - R_f) ------ CAPM model

R_i = Expected return of investment

R_f = Risk-free rate

β_i = Beta of the investment

R_m = Expected return of market

(R_m - R_f) = Market risk premium

CAPM calculator

Topic 3 – “Normal Distribution” – Predict Stock Returns (FYI only)

Stock Price Normal Distribution (FYI)  ( https://homepage.divms.uiowa.edu/~mbognar/applets/normal.html)

For example: from our in class exercise

	WMT	Tesla	Amazon
Mean	1.02%	6.19%	1.70%
standard deviation	5.74%	20.77%	9.63%

Excel command to get the probability to earn 5% or higher returns for WMT:

=1-NORM.DIST(5%, 1.02%, 5.74%, 1)

Excel command to get the probability to earn 5% or higher returns for TESLA:

=1-NORM.DIST(5%, 6.19%, 20.77%, 1)

Excel command to get the probability to earn 5% or higher returns for AMAZON:

=1-NORM.DIST(5%, 1.7%, 9.63%, 1)

HW of chapter 6  (Due with the second mid Term exam)

Chapter 6 Homework

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 1/1/19. Bill sold the shares on 12/31/19 for $3.45. Robotics stock has a beta of 1.9, the risk-free 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 2019 are given below. The price of the stock on January 1, 2019 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 2019. (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 risk-free 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%)

State of the economy	Probability of the states	% Return (Cash Flow/Inv. Cost)
Economic Recession	30%	5%
Strong and moderate Economic Growth	70%	15%

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 Wal-Mart. 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 Wal-Mart. 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)

Excel Command:

sumproduct(array1, array2) ---- to get expected returns

stdev(observation1, obv2, obv3,….) ---- to get standard deviation

correl(stock 1’s return, stock 2’s return) --- to get correlation between stocks

beta = slope(stock return, sp500 return) --- to get the stock’s beta

Expected return calculator

www.jufinance.com/return

Holding Period Return Calculator

www.jufinance.com/hpr

CAPM Model Calculator

www.jufinance.com/capm

Two Stock Portfolio Return and Standard Deviation

www.jufinance.com/portfolio

FYI only

W1 and W2 are the percentage of each stock in the portfolio.

• r₁₂ = the correlation coefficient between the returns on stocks 1 and 2,
• s₁₂ = the covariance between the returns on stocks 1 and 2,
• s₁ = the standard deviation on stock 1, and
• s₂ = the standard deviation on stock 2.

• s₁₂ = the covariance between the returns on stocks 1 and 2,
• N = the number of states,
• p_i = the probability of state i,
• R_1i = the return on stock 1 in state i,
• E[R₁] = the expected return on stock 1,
• R_2i = the return on stock 2 in state i, and
• E[R₂] = the expected return on stock 2.

2022 High Beta Stocks List | The 100 Highest Beta S&P 500 Stocks (FYI)

Updated on September 15th, 2022 by Bob Ciura

https://www.suredividend.com/high-beta-stocks/

#5: Fortinet, Inc. (FTNT)

Fortinet, Inc. provides broad, integrated, and automated cybersecurity solutions around the world. It offers FortiGate hardware and software licenses that provide various security and networking functions. Fortinet is a large-cap stock with a market cap above $40 billion.

In the 2022 second quarter, Fortinet generated revenue of $1.03 billion, up 29% from the same quarter last year. Product and service revenue grew 34% and 25%, respectively. Adjusted earnings-per-share increased 26% year-over-year.

For 2022, Fortinet expects revenue of $4.25 billion to $4.40 billion, consisting of $2.62 billion to $2.67 billion in service revenue. Billings are expected between $5.56 billion and $5.64 billion. Adjusted earnings-per-share are expected in a range of $1.01 to $1.06 for the full year.

FTNT has a Beta value of 1.71.

#4: Paycom Software Inc. (PAYC)

Paycom is a technology stock that produces cloud-based human capital management (HCM) as-a-service software. Services help employers manage a variety of HCM tasks such as talent acquisition, and time and labor management.

In the most recent quarter, Paycom generated $317 million in revenue, up 31% year-over-year. Recurring revenue grew 31%, and represented 98% of total revenue. Earnings-per-share of $1.26 increased 30% compared with $0.97 in the year-ago quarter.

PAYC has a Beta value of 1.71.

#3: ServiceNow (NOW)

ServiceNow is a high-quality technology company, which transforms old, manual ways of working into modern digital workflows. It reduces the complexity of jobs and makes work more pleasant to employees, thus resulting in increased productivity.

ServiceNow currently has more than 7,400 enterprise customers, which include about 80% of the Fortune 500. All these customers use the Now Platform, which is an intelligent cloud platform that carries out their digital transformation.

ServiceNow is a leader in the digital transformation of companies towards making work better for their employees. According to a research of IDC, more than $3 trillion has been invested in digital transformation initiatives but only 26% of the investments have delivered acceptable returns.

NOW has a Beta value of 1.77.

#2: Advanced Micro Devices (AMD)

Advanced Micro Devices was founded in 1959 and in the decades since it has become a sizable player in the chip market. AMD is heavy in gaming chips, competing with others like NVIDIA for the lucrative, but competitive market.

In the 2022 second quarter, AMD reported revenue of $6.6 billion. This was a 70% year-over-year increase, driven by organic growth as well as the contribution from Xilinx. Gross margin contracted two percentage points to 46% for the quarter. Operating income rose 22% to $526 million. Adjusted earnings-per-share of $1.05 increased 67%.

AMD has a Beta value of 2.09.

#1: NVIDIA Corporation (NVDA)

NVIDIA Corporation is a specialized semiconductor company that designs and manufactures graphics processors, chipsets and related software products.

Its products include processors that are specialized for gaming, design, artificial intelligence, data science and big data research, as well as chips designed for autonomous vehicles and robots.

Over the last five years, NVIDIA’s growth exploded. This growth was partially driven by cryptocurrency mining, although that has mostly ceased to be a tailwind, and future growth will be centered on other growth drivers. NVIDIA’s GPUs are very versatile in AI applications, which was an unintended benefit of the company’s research and development efforts.

The company has immediately started to capitalize on this trend by offering GPUs that are optimized for deep learning and other specialized applications. These GPUs act as the brains of computers, robots, and self-driving cars. Those GPUs are, among others, utilized in professional visualization and data centers. The markets NVIDIA supplies GPUs for have strong growth tailwinds, which bodes well for NVIDIA’s long-term revenue outlook.

NVDA has a Beta value of 2.31.

Negative Beta Stocks | The 1 Negative Beta S&P 500 Stock In 2022 (FYI)

Updated on January 19th, 2022 by Bob Ciura

https://www.suredividend.com/negative-beta-stocks/

Negative Beta Stock: Clorox Company (CLX)

With over 40 years of dividend increases, Clorox is on the exclusive Dividend Aristocrats list.

Clorox is a manufacturer and marketer of consumer and professional products, spanning a wide array of categories from charcoal to cleaning supplies to salad dressing.

More than 80% of its revenue comes from products that are #1 or #2 in their categories across the globe, helping Clorox produce more than $7 billion in annual revenue.

Clorox reported first quarter earnings on November 1st, 2021, and results were better than expected, although expectations were low.

Total revenue declined nearly –6% year–over–year to $1.8 billion, as organic sales fell –5% during the quarter. The decline was due to unfavorable pricing and mix, a decline in volume, and forex translation.

Cleaning and professional products were higher, but consumer products like vitamins and supplements posted strong declines.

Clorox stock has a Beta value of -0.24.

https://ycharts.com/companies/CLX/performance/price

Chapter 7 Bond pricing

Ppt

Yield Curve http://finra-markets.morningstar.com/BondCenter/Default.jsp 10/10/2022

Understanding the yield curve (youtube)

Balance Sheet of WalMart https://www.nasdaq.com/market-activity/stocks/wmt/financials

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://finra-markets.morningstar.com/BondCenter/Default.jsp

Chapter 7 Study guide

1. Go to http://finra-markets.morningstar.com/BondCenter/Default.jsp , the bond market data website of FINRA to find bond information. For example, find bond sponsored by Wal-mart

Or, just go to www.finra.org, è Investor center è market data è bond è corporate bond

Corporate Bond

1. Understand what is coupon, coupon rate, yield, yield to maturity, market price, par value, maturity, annual bond, semi-annual bond, current yield.

Refer to the following bond at http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104227&symbol=WMT.GP

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)) ------- semi-annual 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 – semi-annual coupon

For example, when the annual coupon bond is selling for $1,200, what is its return to investors?

For example, when the semi-annual 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 semi-annual 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?

8. Understand the cash flows from a bond as a bond investor

For example, a five year, annual coupon bond, with 5% coupon rate. Its cash flows are as follows.

Chapter 7 Home Work (due with the second mid-term)

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% semi-annual 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 yield to maturity? 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 (semi-annual coupon bond):

Price=abs(pv(yield to maturity/2, years left to maturity*2, coupon rate*1000/2, 1000)

To calculate yield to maturity (semi-annual 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(semi-annual 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 (semi-annual 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 Semi-annual, F=2 for semi-annual coupon

M: Par, $1,000;  i: Yield to maturity; n: years left to maturity

Bond calculation  (Thanks to Dr. Lane)

www.jufinance.com/bond

Benchmark bond yields are ‘bad news’ for investors as the Fed hikes rates by 0.75%. What it means for your portfolio

(FYI)

PUBLISHED WED, SEP 21 20222:00 PM EDTUPDATED WED, SEP 21 20223:32 PM EDT, Kate Dore, CFP®

https://www.cnbc.com/2022/09/21/what-the-inverted-yield-curve-means-for-your-portfolio-.html

KEY POINTS

· Ahead of news from the Federal Reserve on Wednesday, the 2-year Treasury yield climbed to 4.006%, the highest level since October 2007, and the 10-year Treasury reached 3.561% after hitting an 11-year high this week.

· When shorter-term government bonds have higher yields than long-term, which is known as yield curve inversions, it’s viewed as a warning sign for a future recession.

· “Higher bond yields are bad news for the stock market and its investors,” said certified financial planner Paul Winter, owner of Five Seasons Financial Planning.

· Young woman analyzing bills while writing in diary.

“Higher bond yields are bad news for the stock market and its investors,” said certified financial planner Paul Winter, owner of Five Seasons Financial Planning in Salt Lake City.

Higher bond yields create more competition for funds that may otherwise go into the stock market, Winter said, and with higher Treasury yields used in the calculation to assess stocks, analysts may reduce future expected cash flows.

What’s more, it may be less attractive for companies to issue bonds for stock buybacks, a way for profitable companies to return cash to shareholders, Winter said.

How Federal Reserve rate hikes affect bond yields

Market interest rates and bond prices typically move in opposite directions, which means higher rates cause bond values to fall. There’s also an inverse relationship between bond prices and yields, which rise as bond values drop.

Fed rate hikes have somewhat contributed to higher bond yields, Winter said, with the impact varying across the Treasury yield curve.

Markets will see higher 10-year treasury yields, says Komal Sri-Kumar

“The farther you move out on the yield curve and the more you go down in credit quality, the less Fed rate hikes affect interest rates,” he said.

That’s a big reason for the inverted yield curve this year, with 2-year yields rising more dramatically than 10-year or 30-year yields, he said.

Consider these smart moves for your portfolio

It’s a good time to revisit your portfolio’s diversification to see if changes are needed, such as realigning assets to match your risk tolerance, said Jon Ulin, a CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.

On the bond side, advisors watch so-called duration, measuring bonds’ sensitivity to interest rate changes. Expressed in years, duration factors in the coupon, time to maturity and yield paid through the term.

Above all, investors must remain disciplined and patient, as always, but more specifically if they believe rates will continue to rise.

While clients welcome higher bond yields, Ulin suggests keeping durations short and minimizing exposure to long-term bonds as rates climb. “Duration risk may take a bite out of your savings over the next year regardless of the sector or credit quality,” he said.

Winter suggests tilting stock allocations toward “value and quality,” typically trading for less than the asset is worth, over growth stocks, that may be expected to provide above-average returns. Often, value investors are seeking undervalued companies expected to appreciate over time.

“Above all, investors must remain disciplined and patient, as always, but more specifically if they believe rates will continue to rise,” he added.

Analysis: U.S. yield curve flashing more warning signs of recession risks ahead

By Davide Barbuscia, 7/28/2022

https://www.reuters.com/world/us/us-yield-curve-flashing-more-warning-signs-recession-risks-ahead-2022-07-27/

NEW YORK, July 27 (Reuters) - The U.S. government bond market is sending a fresh batch of signals that investors are increasingly convinced the Federal Reserve's aggressive actions to tame inflation will result in recession.

The shape of the yield curve, which plots the return on all Treasury securities, is seen as an indicator of the future state of health of the economy, as inversions of the curve have been a reliable sign of looming recession.

While Fed Chair Jerome Powell on Wednesday said that he does not see the economy currently in a recession, spreads between different pairings of Treasury securities - and derivatives tied to them - have in past weeks moved into or toward an "inversion" when the shorter dated of the pair yields more than the longer one. These join another widely followed yield spread relationship - between 2- and 10-year notes - that has been in inversion for most of this month. read more

"Curves are flattening and some are negative. They're ultimately all telling you the same thing," said Eric Theoret, global macro strategist at Manulife Investment Management.

A steepening curve typically reflects expectations of stronger economic activity, higher inflation and interest rates. A flattening curve can signal expectations of rate hikes in the near term and a weaker economic outlook.

The Fed is aiming to achieve a so-called "soft landing" that does not entail an outright contraction in U.S. economic output and the rise in joblessness that typically accompanies that. But the moves in the bond market over the past week show waning confidence in the Fed's ability to achieve so benign an outcome.

Some of those moves reversed slightly on Wednesday, with rates at the short end of the curve turning lower on expectations of the Fed being less likely to continue with super-sized hikes.

On Wednesday the Fed raised its benchmark overnight interest rate by 0.75% to a range of between 2.25% and 2.50% as it flagged weakening economic data. Powell said on Wednesday that achieving a soft landing for the economy was challenging.

The curve is indicating that the Fed will have to start cutting rates after hiking.

The part of the U.S. Treasury yield curve that compares yields on two-year Treasuries with yields on 10-year government bonds has been inverted for most of the past month and is around the most negative its been since 2000 on a closing price basis.

Powell, however, has in recent months said that the short-end of the yield curve was a more reliable warning of an upcoming recession.

"The first 18 months of the yield curve has 100% of the explanatory power of the yield curve, and it makes sense ... because if it's inverted that means the Fed is going to cut which means the economy is weak", he said in March.

Some analysts pointed to another measure, the differential between what money markets expect the three-month federal funds rate to be in 18 months and the current three-month federal funds rate. That went briefly into negative territory on Tuesday, said George Goncalves, head of U.S. Macro Strategy at MUFG.

That spread - measured through overnight indexed swap (OIS) rates, which reflect traders' expectations on the federal funds rate - was about 230 basis points in March.

"It's very similar to looking at the Treasury curve, these are all curves that trade with tiny spreads with each other," said Subadra Rajappa head of U.S. rates strategy at Societe Generale.

Another measurement of the curve, the 2-year forward rate for 3-month bills , is around the flattest since June 2021.

Fed economists have said that near-term forward yield spreads - namely the differential between the three-month Treasury yield and what the market expects that yield to be in 18 months - are more reliable predictors of a recession than the differential between long-maturity Treasury yields and their short-maturity counterparts.

That spread has not gone negative, though it has narrowed significantly from over 250 basis points in March to about 70 basis points this week, said MUFG's Goncalves.

Another part of the curve that compares the yield on three-month Treasury bills and 10-year notes has flattened dramatically over the past few weeks, from nearly 220 basis points in May to around 15 basis points this week although it steepened after Powell's remarks.

Separately, futures contracts tied to the Fed's policy rate showed this week that benchmark U.S. interest rates will peak in January 2023, earlier than the February reading they gave last week. read more

"Inverting yield curves, rising inflation, weakening housing data, and slumping surveys have all driven the increase (in recession probability) in the US," wrote Credit Suisse analysts in a research note on Tuesday, forecasting that the probability of the United States being in recession 6 and 12 months ahead is approximately 25%.

"It is likely recession probabilities rise further in the coming months if policy rate hikes cause further curve inversion and cyclical data continue to deteriorate," they added.

Chapter 8 Stock Valuation

ppt

Part I Dividend payout and Stock Valuation

For class discussion:

· Why can we use dividend to estimate a firm’s intrinsic value?

·    Are future dividends predictable?

F Dividend History

· EX-DIVIDEND DATE 08/10/2022

· DIVIDEND YIELD 4.92%

· ANNUAL DIVIDEND $0.60

· P/E RATIO 4.36

https://www.nasdaq.com/market-activity/stocks/f/dividend-history

Ex/EFF DATE	TYPE	CASH AMOUNT	DECLARATION DATE	RECORD DATE	PAYMENT DATE
08/10/2022	CASH-------	$0.15	07/27/2022	08/11/2022	09/01/2022
04/25/2022	CASH	$0.10	04/07/2022	04/26/2022	06/01/2022
01/28/2022	CASH	$0.10	01/10/2022	01/31/2022	03/01/2022
11/18/2021	CASH	$0.10	10/27/2021	11/19/2021	12/01/2021
01/29/2020	CASH	$0.15	01/08/2020	01/30/2020	03/02/2020
10/21/2019	CASH	$0.15	10/11/2019	10/22/2019	12/02/2019
07/22/2019	CASH	$0.15	07/12/2019	07/23/2019	09/03/2019
04/23/2019	CASH	$0.15	04/09/2019	04/24/2019	06/03/2019
01/30/2019	CASH	$0.15	01/17/2019	01/31/2019	03/01/2019
10/22/2018	CASH	$0.15	10/11/2018	10/23/2018	12/03/2018
07/20/2018	CASH	$0.15	07/13/2018	07/23/2018	09/04/2018
04/19/2018	CASH	$0.15	04/10/2018	04/20/2018	06/01/2018
01/29/2018	CASH	$0.13	01/16/2018	01/30/2018	03/01/2018

Wal-Mart Dividend History

·    Refer to the following table for Wal-mart (WMT’s dividend history)

http://stock.walmart.com/investors/stock-information/dividend-history/default.aspx

WMT Dividend History

https://www.nasdaq.com/market-activity/stocks/wmt/dividend-history

WMT Dividend History

· EX-DIVIDEND DATE 08/11/2022

· DIVIDEND YIELD 1.64%

· ANNUAL DIVIDEND $2.24

· P/E RATIO 27.83

Ex/EFF DATE	TYPE	CASH AMOUNT	DECLARATION DATE	RECORD DATE	PAYMENT DATE
12/08/2022	CASH-----	$0.56	02/17/2022	12/09/2022	01/03/2023
08/11/2022	CASH	$0.56	02/17/2022	08/12/2022	09/06/2022
05/05/2022	CASH	$0.56	02/17/2022	05/06/2022	05/31/2022
03/17/2022	CASH	$0.56	02/17/2022	03/18/2022	04/04/2022
12/09/2021	CASH	$0.55	02/18/2021	12/10/2021	01/03/2022
08/12/2021	CASH	$0.55	02/18/2021	08/13/2021	09/07/2021
05/06/2021	CASH	$0.55	02/18/2021	05/07/2021	06/01/2021
03/18/2021	CASH	$0.55	02/18/2021	03/19/2021	04/05/2021
12/10/2020	CASH	$0.54	02/18/2020	12/11/2020	01/04/2021
08/13/2020	CASH	$0.54	02/18/2020	08/14/2020	09/08/2020
05/07/2020	CASH	$0.54	02/18/2020	05/08/2020	06/01/2020
03/19/2020	CASH	$0.54	02/18/2020	03/20/2020	04/06/2020
12/05/2019	CASH	$0.53	02/19/2019	12/06/2019	01/02/2020
08/08/2019	CASH	$0.53	02/19/2019	08/09/2019	09/03/2019
05/09/2019	CASH	$0.53	02/19/2019	05/10/2019	06/03/2019
03/14/2019	CASH	$0.53	02/19/2019	03/15/2019	04/01/2019
12/06/2018	CASH	$0.52	02/21/2018	12/07/2018	01/02/2019
08/09/2018	CASH	$0.52	02/21/2018	08/10/2018	09/04/2018
05/10/2018	CASH	$0.52	02/20/2018	05/11/2018	06/04/2018
03/08/2018	CASH	$0.52	02/20/2018	03/09/2018	04/02/2018
12/07/2017	CASH	$0.51	02/21/2017	12/08/2017	01/02/2018

For class discussion:

What conclusions can be drawn from the above information?

Can we figure out the stock price of Wal-Mart based on dividend, with reasonable assumptions?

Stock Splits

Wal-Mart Stores, Inc. was incorporated on Oct. 31, 1969. On Oct. 1, 1970, Walmart offered 300,000 shares of its common stock to the public at a price of $16.50 per share. Since that time, we have had 11 two-for-one (2:1) stock splits. On a purchase of 100 shares at $16.50 per share on our first offering, the number of shares has grown as follows:

2:1 Stock Splits	Shares	Cost per Share	Market Price on Split Date	Record Date	Distributed
On the Offering	100	$16.50
May 1971	200	$8.25	$47.00	5/19/71	6/11/71
March 1972	400	$4.125	$47.50	3/22/72	4/5/72
August 1975	800	$2.0625	$23.00	8/19/75	8/22/75
Nov. 1980	1,600	$1.03125	$50.00	11/25/80	12/16/80
June 1982	3,200	$0.515625	$49.875	6/21/82	7/9/82
June 1983	6,400	$0.257813	$81.625	6/20/83	7/8/83
Sept. 1985	12,800	$0.128906	$49.75	9/3/85	10/4/85
June 1987	25,600	$0.064453	$66.625	6/19/87	7/10/87
June 1990	51,200	$0.032227	$62.50	6/15/90	7/6/90
Feb. 1993	102,400	$0.016113	$63.625	2/2/93	2/25/93
March 1999	204,800	$0.008057	$89.75	3/19/99	4/19/99

Can you estimate the expected dividend in 2022? And in 2023? And on and on…

Can you write down the math equation now?

WMT stock price = ?

WMT stock price = npv(return, D1, D2, …D∞)

WMT stock price = D1/(1+r) + D2/(1+r)² + D3/(1+r)³ + D4/(1+r)⁴ + …

Can you calculate now? It is hard right because we assume dividend payment goes to infinity. How can we simplify the calculation?

We can assume that dividend grows at certain rate, just as the table on the right shows.

Discount rate is r (based on Beta and CAPM that we will learn in chapter 13)

https://www.nasdaq.com/market-activity/stocks/wmt

What does each item indicate?

From finviz.com   https://finviz.com/quote.ashx?t=WMT

Part II: Constant Dividend Growth-Dividend growth model

Calculate stock prices

1)      Given next dividends and price expected to be sold for

Po= 

Po=  +

Po=  + +

Po=  + ++

……

Refer to http://www.calculatinginvestor.com/2011/05/18/gordon-growth-model/

· Now let’s apply this Dividend growth model in problem solving.

Constant dividend growth model calculator (www.jufinance.com/stock)

Equations

· Po= D1/(r-g) or Po= Do*(1+g)/(r-g)

· r = D1/Po+g = Do*(1+g)/Po+g; So r = total return = dividend yield + capital gain yield

· g= r-D₁/Po = r- Do*(1+g)/Po

· D1 = Po *(r-g); D0 = Po*(r-g)/(1+g)

· Capital Gain yield = g = (P₁-Po)/Po; P₁: Stock price one year later (P₁=D₂/(r-g))

· Dividend Yield = r – g = D₁ / Po = Do*(1+g) / Po

· D₁=Do*(1+g); D₂= D₁*(1+g); D₃=D₂*(1+g)…

For discussion:

§ You own 100 shares of WMT. Are you a significant shareholder of WMT? What type of rights you have as minor shareholders?

§ 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.

§ Doug McMillon is the CEO of Wal-Mart. 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?

§ 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?

§ 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: D₃ = D₂*(1+g) = D₁*(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)

www.jufinance.com/stock

Excel Template (FYI)

Useful website

www.finance.yahoo.com

www.finviz.com

www.getaom.com

money.msn.com/investing

zacks.com

minyanville.com

moneychimp.com

navellier.investor.com/portfolio-grader/

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 real-world 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.

Deriving the Gordon Growth Model Equation

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/gordon-growth-model/

· Now let’s apply this Dividend growth model in problem solving.

Stock Splits Calendar (FYI)

10/25/2022

https://www.nasdaq.com/market-activity/stock-splits

SYMBOL	COMPANY	RATIO	PAYABLE ON	EX-DATE	ANNOUNCED
YAGZZ	Yageo Corporation GDR - 144A	39 : 49	11/08/2022	11/08/2022	11/08/2022
TWO	Two Harbors Investments Corp	1 : 4	11/02/2022	11/02/2022	11/02/2022
UXIN	Uxin Limited	1 : 10	10/28/2022	10/28/2022	10/28/2022
VAGNF	Vegano Foods	1 : 10	10/25/2022	10/25/2022	10/25/2022
CMHHY	China Merchants Port Holdings Company Ltd ADR	5.420%	07/29/2022	07/06/2202	N/A

Dividend Calendar (FYI)

10/25/2022

https://www.nasdaq.com/market-activity/dividends

Symbol	Name	Ex-Dividend Date	Payment Date	Record Date	Dividend	Indicated Annual Dividend	Announcement Date
AM	Antero Midstream Corporation	10/25/2022	11/09/2022	10/26/2022	0.225	0.9	10/12/2022
ATR	AptarGroup, Inc.	10/25/2022	11/16/2022	10/26/2022	0.38	1.52	10/13/2022
CALM	Cal-Maine Foods, Inc.	10/25/2022	11/10/2022	10/26/2022	0.853	3.412	09/27/2022
CLX	Clorox Company (The)	10/25/2022	11/10/2022	10/26/2022	1.18	4.72	09/20/2022
DNUT	Krispy Kreme, Inc.	10/25/2022	11/09/2022	10/26/2022	0.035	0.14	09/15/2022
RY	Royal Bank Of Canada	10/25/2022	11/24/2022	10/26/2022	0.925	3.701	08/24/2022
THO	Thor Industries, Inc.	10/25/2022	11/09/2022	10/26/2022	0.45	1.8	10/12/2022

Second Midterm Exam (11/3/2022)

Second Mid Term Exam Study Guide

Chapters 6, 7, 8

Study Guide Review Notes here FYI (coming soon)

Second Midterm Exam Study Guide (11/3)

Chapter 6

1. Given D1, r, g, Po=?

2. Given D1, r, g, Po=?

3. Given D1, g, Po, dividend yield?

4. Given D1, r, Po, r=?

5. Given D1, Po, r, g=?

6. Given r, Po, g, D1=?

7. Given r, Po, g, Do=?

Chapter 7

1. Issuer Symbol Callable Coupon _rate Maturity Moody Rating Price Yield

GM CRK3680632 Yes 9% 07/15/2031 aa 97 _____

This bond is callable. This means that?

· Coupon? Price?

· Moody?

· What is the rating by Moody?

· How much YTM?

· How much current yield?

· Recalculate price if YTM is given.

· A Zero coupon bond, given years, YTM, price?

· A semi-annual coupon bond, given ytm, nper, coupon, calculate price.

· A semi-annual coupon bond, given price, nper, coupon, calculate YTM.

Chapter 8

Given total fund, fund invested in each stock, the probability of each stock’s return.

1. The percentage of investment of each security is how much ?

2. Calculate the return of each stock in the portfolio.

3. Given probability of each economic condition, and its return. Calculate expected return.

4. Given beta of each stock in the portfolio, and weight of each stock. Calculate the beta of the portfolio. And given risk free rate, and market return, calculate portfolio’s return.

Refer to the graph

· What does A represent?

· What does B represent?

· How much is the slope of the above security market line?

5. What is systematic risk? Unsystematic risk?

6. Given purchasing price, selling price, calculate HPR.

7. How to diversify?

8. Given probability, return, under each economic condition, and calculate expected return and standard deviation.

Chapter 10 Capital Budgeting

Ppt

Chapter 10 In Class Exercise

Question 1: Project with an initial cash outlay of $20,000 with following free cash flows for 5 years.

Year   Cash flows

1                    $8,000

2                    4,000

3                    3,000

4                    5,000

5                    10,000

1)      How much is the payback period (approach one)?

·         Does this method consider time value of money?

·         Easy to explain to outsiders?

2)      If the firm has a 10% required rate of return. How much is NPV (approach 2)?

·         What does NPV means? NPV>0 indicates what? Otherwise?

·         Does this method consider time value of money?

·         Easy to explain to outsiders?

3)      If the firm has a 10% required rate of return. How much is IRR (approach 3)?

·         What does IRR mean? IRR > 10% indicates what? Otherwise?

·         Does this method consider time value of money?

·         Easy to explain to outsiders?

Question 2: Project with an initial cash outlay of $60,000 with following free cash flows for 5 years.

Year FCF

      Initial outlay    –60,000          

      1          25,000          

      2          24,000          

      3          13,000

      4          12,000

      5          11,000 

The firm has a 15% required rate of return.

Calculate payback period, NPV, IRR. Analyze your results.

Question 3: Mutually Exclusive Projects

1)      Consider the following cash flows for one-year Project A and B, with required rates of return of 10%. You have limited capital and can invest in one but one project. Which one?

§  Initial Outlay: A = $200; B = $1,500

§  Inflow:            A = $300; B = $1,900

2)      Example: Consider two projects, A and B, with initial outlay of $1,000, cost of capital of 10%, and following cash flows in years 1, 2, and 3:

A: $100                       $200                $2,000

B: $650                       $650                $650

Which project should you choose if they are mutually exclusive? Independent? Crossover rate?

Question 4:

Question 2:

Period	Project A	Project B
0	-500	-400
1	325	325
2	325	200
IRR
NPV

If the required rate of return is 10%. Which project shall you choose?

1)      How much is the cross over rate? (answer: 11.8%)

2)      How is your decision if the required rate of return is 13%? (answer: NPV of B>NPV of A)

· Rule for mutually exclusive projects: (answer: Choose B)

· What about the two projects are independent? (answer: Choose both)

Solution:

Chapter 10 Homework (due with final)

1.       Consider the following two projects, calculate the NPVs of the two projects. If the two projects are mutually exclusive, which one should you choose? What about they are independent projects?(answer: NPVa: -8.67; NPVb: 12.65; Mutually exclusive: B; Independent:B)

Project	Year 0 Cash Flow	Year 1 Cash Flow	Year 2 Cash Flow	Year 3 Cash Flow	Year 4 Cash Flow	Discount Rate
A	-100	40	40	40	N/A	.15
B	-73	30	30	30	30	.15

2. You are considering an investment with the following cash flows. If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why? (answer: 17.53%; Yes, rate<IRR, accept)

3. It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period? (answer: 1.67)

4.  An investment project provides cash flows of $1,190 per year for 10 years. If the initial cost is $8,000, what is the payback period? (answer: 6.72)

5. A firm evaluates all of its projects by using the NPV decision rule. At a required return of 14 percent, the NPV for the following project is _____ and the firm should _____ the project. (answer: 7264.95, accept)

  6. Consider the following two mutually exclusive projects. Use 10% for required rate of return.

Year	Cash flow (A)	Cash Flow (B)
0	(10,110)	(10,110)
1	5,373	4,443
2	3,373	3,543
3	4,473	5,343

What is the NPV of each project? What is the IRR of each project? (answer: A- 922.78; 15.33%; B- 871.47; 14.68%)
What is the crossover rate for these two projects?  (answer: 6.29%)

7.  Cash Flow in Period

Initial Outlay         1                 2                   3                          4

$4,000,000      $1,546,170    $1,546,170       $1,546,170         $1,546,170

The Internal Rate of Return (to nearest whole percent) i? (answer: 20.03%)

Welltran Corp. can purchase a new machine for $1,875,000 that will provide an annual net cash flow of $650,000 per year for five years. The machine will be sold for $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%. (Answer: $447,291.91. Hint: year 5’s cash flow is 650k+120k = 770k)

NPV, IRR, Payback Calculator

https://www.jufinance.com/capital/

NPV, IRR, Payback Excel Template

https://www.jufinance.com/npv_1/

Math Equation

Here’s what each symbol means:

• Ct = net cash inflow for the period
• CO = initial investment
• r = discount rate
• t = number of periods

NPV Excel syntax

Syntax

  NPV(rate,value1,value2, ...)

  Rate     is the rate of discount over the length of one period.

  Value1, value2, ...     are 1 to 29 arguments representing the payments and income.

· Value1, value2, ... must be equally spaced in time and occur at the end of each    period. NPV uses the order of value1, value2, ... to interpret the order of cash flows. Be sure to enter your payment and income values in the correct sequence.

IRR Excel syntax

Syntax

   IRR(values, guess)

   Values  is an array or a reference to cells that contain numbers for which you want to calculate the internal rate of return.

  Guess     is a number that you guess is close to the result of IRR.

Net Present Value NPV Explained with

NPV Example for NPV Calculation (Cartoon, video)

http://www.youtube.com/watch?v=7FsGpi_W9XI

Using Excel for Net Present Values, IRR's and MIRR's

https://www.youtube.com/watch?v=YgVQvn51noc

‘Simple Rules’ for Running a Business (fyi)

From the 20-page cellphone contract to the five-pound employee handbook, even the simple things seem to be getting more complicated.

Companies have been complicating things for themselves, too—analyzing hundreds of factors when making decisions, or consulting reams of data to resolve every budget dilemma. But those requirements might be wasting time and muddling priorities.

So argues Donald Sull, a lecturer at the Sloan School of Management at the Massachusetts Institute of Technology who has also worked for McKinsey & Co. and Clayton, Dubilier & Rice LLC. In the book Simple Rules: How to Thrive in a Complex World, out this week from Houghton Mifflin Harcourt HMHC -1.36%, he and Kathleen Eisenhardt of Stanford University claim that straightforward guidelines lead to better results than complex formulas.

Mr. Sull recently spoke with At Work about what companies can do to simplify, and why five basic rules can beat a 50-item checklist. Edited excerpts:

WSJ: Where, in the business context, might “simple rules” help more than a complicated approach?

Donald Sull: Well, a common decision that people face in organizations is capital allocation. In many organizations, there will be thick procedure books or algorithms–one company I worked with had an algorithm that had almost 100 variables for every project. These are very cumbersome approaches to making decisions and can waste time. Basically, any decision about how to focus resources—either people or money or attention—can benefit from simple rules.

WSJ: Can you give an example of how that simplification works in a company?

Sull: There’s a German company called Weima GmBH that makes shredders. At one point, they were getting about 10,000 requests and could only fill about a thousand because of technical capabilities, so they had this massive problem of sorting out which of these proposals to pursue.

They had a very detailed checklist with 40 or 50 items. People had to gather data and if there were gray areas the proposal would go to management. But because the data was hard to obtain and there were so many different pieces, people didn’t always fill out the checklists completely. Then management had to discuss a lot of these proposals personally because there was incomplete data. So top management is spending a disproportionate amount of time discussing this low-level stuff.

Then Weima came up with guidelines that the frontline sales force and engineers could use to quickly decide whether a request fell in the “yes,” “no” or “maybe” category. They did it with five rules only, stuff like “Weima had to collect at least 70% of the price before the unit leaves the factory.”

After that, only the “maybes” were sent to management. This dramatically decreased the amount of time management spend evaluating these projects–that time was decreased by almost a factor of 10.

Or, take Frontier Dental Laboratories in Canada. They were working with a sales force of two covering the entire North American market. Limiting their sales guidelines to a few factors that made someone likely to be receptive to Frontier—stuff like “dentists who have their own practice” and “dentists with a website”—helped focus their efforts and increase sales 42% in a declining market.

WSJ: Weima used five factors—is that the optimal number? And how do you choose which rules to follow?

Sull: You should have four to six rules. Any more than that, you’ll spend too much time trying to follow everything perfectly. The entire reason simple rules help is because they force you to prioritize the goals that matter. They’re easy to remember, they don’t confuse or stress you, they save time.

They should be tailored to your specific goals, so you choose the rules based on what exactly you’re trying to achieve. And you should of course talk to others. Get information from different sources, and ask them for the top things that worked for them. But focus on whether what will work for you and your circumstances.

WSJ: Is there a business leader you can point to who has embraced the “simple rules” guideline?

Donald Sull: Let’s look at when Alex Behring took over the Brazilian railway and logistics company. With a budget of $15 million, how do you choose among $200 million of investment requests, all of which are valid?

The textbook business-school answer to this is that you run the NPV (net present value) test on each project and rank-order them by NPV. Alex Behring knows this. He was at the top of the class at Harvard Business School.

But instead, he decided what the most important goals were. You can’t achieve everything at once. In their case, their priorities were removing bottlenecks on growing revenues and minimizing upfront expenditure. So when allocating money, they had a bias for projects that both addressed the bottleneck problem and, for example, used existing tracks and trains.

Similarly, the global-health arm of the Gates Foundation gets many, many funding requests. But since they know that their goal is to have the most impact worldwide, they focus on projects in developing countries because that’s where the money will stretch farther.

Wal-Mart Inc  (NYSE:WMT) WACC %: 6.23%  As of 10/31/2022

As of today (2022-10-31), Walmart's weighted average cost of capital is 6.23%. Walmart's ROIC % is 10.48% (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 %:10.43%  As of 10/31/2022

As of today (2022-10-31), Amazon.com's weighted average cost of capital is 10.43%. Amazon.com's ROIC % is 5.84% (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/WACC-Percentage/Amazon.com%20Inc

Apple Inc  (NAS:AAPL) WACC %:11.42%  As of 10/31/2022

As of today (2022-10-31), Apple's weighted average cost of capital is 11.42%. Apple's ROIC % is 33.75% (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

Tesla WACC %: 20.31%  As of 10/31/2022

As of today (2022-10-31), Tesla's weighted average cost of capital is 20.31%. Tesla's ROIC % is 27.38% (calculated using TTM income statement data). Tesla earns returns that do not match up to its cost of capital. It will destroy value as it grows.

https://www.gurufocus.com/term/wacc/NAS:TSLA/WACC-/Tesla

Final Exam on 11/15 at 11:30 am

FIN 301 Comprehensive Final Exam Study Guide

(please use the first and the second midterm exams as study guide for chapters 3, 4, 5, 6, 7, 8. Please use homework questions as study guide for chapter 10)

Multiple Choice Questions: 2 points each, total 100 points.)

Chapter 3, chapter 4

1. Given net income, depreciation, changes in AR, AP, and inventory, calculate the company's change in cash from operation.

2. Examples of use of cash, source of cash.

3. Calculate ROA. ROA = NI/TA. So look for NI, and TA. Hint: TE + TD = TA

4. Given EBIT, interest, tax rate, EBIT, and dividend paid, calculate for RE

5. Given CA, CL in two continuous years, calculate changes in NWC

6-9 Concept about income statement, balance sheet

Chapter 5

10-11 Given PV, r, nper, calculate for FV

12. Given PV, r, nper, calculate FV (hint: no pmt)

13. Given FV, r, nper, calculate PV (hint: no pmt)

14. Given PV, r, nper, calculate FV (hint: no pmt)

15. Given FV, r, nper, pmt, calculate PV

16. Given PV, FV, nper, no pmt, calculate for rate

17. Given PV, rate (hint: if monthly, dividend by 12), pmt, calculate for nper (hint: FV=0)

Chapter 6

18-19: What is systematic risk? Unsystematic risk?

20. How to diversify to achieve the goal for diversification?

21. Given beta, r of stock A, beta and r of stock B, calculate market return

22. Given beta, r of stock A, beta and r of stock B, calculate risk free rate

23. Given beta, r of stock A, beta and r of stock B, and given stock C’s beta, calculate its return

24-25. Definition of beta

26, Calculate return given probability of each state of economy, and return under each state of economy.

Chapter 7

27-28. Bond conceptual questions

29. Bond: given nper, bond price, yield to maturity, calculate for coupon rate (hint: use pmt function)

30-31. Given nper, bond price, coupon rate, calculate for yield to maturity, for semi-annual coupon bond and annual coupon bond .

32. Zero coupon bond: given nper, price, calculate for yield to maturity.

33. Calculate current yield

34. Calculate coupon rate

Chapter 8

35. Given dividend yield, Po, calculate for D1.

36. Given r, D0, g, calculate for dividend yield

37. Given D0, g, calculate for D5

38. Given Do, g, and r calculate for Po

39: given Do, g, r, calculate for Po

40. Given D1, g, r, calculate for Po

Chapter 10

41-50. Calculate for payback period, NPV, IRR, given CFo – CF4 and r, calculate crossover rate.

Happy Holidays!

Happy Holidays!