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


Coverage, HW, Supplements

-       Required



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:


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






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


       Global warming




       student loan

       government debt

       tax reform

       Natural disaster


       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




1.     What are the six parts of the financial markets


       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


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


N = ln(FV/C*r+1)/(ln(1+r))


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)




Time Value of Money Calculator

Chapter 3 Financial Statement Analysis




Explaining 4 Financial Statements (youtube)



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


Lets compare Nike with GoPro based on 10K (








For discussion: Which company is better?




Lets find it out by comparing stock performance between the two firms.


Nike Stock Performance (





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 30th, 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 30th, 2011 


Home Depot (Ticker in the market: HD) reported the following information for the year ended January 30th, 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 30th, 2011


















GoPro Stock performance ( )






Balance Sheet Template


Income Statement Template



Cash flow template



Ratio Analysis (plus balance sheet, income statement)


********* Part II: Cash Flow Statement ******************
Cash flow animation


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






Deferred Taxes


Non-Cash Items


Changes in Working Capital


Cash from Operating Activities


Capital Expenditures


Other Investing Cash Flow Items, Total


Cash from Investing Activities


Financing Cash Flow Items


Total Cash Dividends Paid


Issuance (Retirement) of Stock, Net


Issuance (Retirement) of Debt, Net


Cash from Financing Activities


Foreign Exchange Effects


Net Change in Cash


Cash Interest Paid, Supplemental


Cash Taxes Paid, Supplemental




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

2.      What does net change in cash mean?





Now lets 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. Teddys 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. Arts 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


Cash from operation

net income


plus depreciation


-/+ AR



-/+ Inventory



+/- AP



net change in cash from operation


Cash from investment

-/+ (NFA+depreciation)



net change in cash from investment


Cash from finaning

+/- long term debt



+/- common stock



- dividend



net change in cash from investment


Total net change of cash


Cash at the end of the year



(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 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 net fixed assets = $10 + $10 = $20 this year.


How much has been spent on fixed assets?

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

Solution: see above

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


Chapter 4: Ratio Analysis




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



Ratio analysis template (



Stock screening tools


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



P/E Ratio (w/o extraordinary items)


Price to Sales Ratio


Price to Book Ratio


Price to Cash Flow Ratio


Enterprise Value to EBITDA


Enterprise Value to Sales


Total Debt to Enterprise Value





Income Per Employee


Receivables Turnover


Total Asset Turnover



Current Ratio


Quick Ratio


Cash Ratio



Gross Margin


Operating Margin


Pretax Margin


Net Margin


Return on Assets


Return on Equity


Return on Total Capital


Return on Invested Capital


Capital Structure

Total Debt to Total Equity


Total Debt to Total Capital


Total Debt to Total Assets


Long-Term Debt to Equity


Long-Term Debt to Total Capital






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 companys 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 ---


P/E Current


P/E Ratio (w/ extraordinary items)


P/E Ratio (w/o extraordinary items)


Price to Sales Ratio


Price to Book Ratio


Price to Cash Flow Ratio


Enterprise Value to EBITDA


Enterprise Value to Sales


Total Debt to Enterprise Value





Income Per Employeee


Receivables Turnover


Total Asset Turnover



Current Ratio


Quick Ratio


Cash Ratio



Gross Margin


Operating Margin


Pretax Margin


Net Margin


Return on Assets


Return on Equity


Return on Total Capital


Return on Invested Capital



Total Debt to Total Equity


Total Debt to Total Capital


Total Debt to Total Assets


Long-Term Debt to Equity


Long-Term Debt to Total Capital



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



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, collect stock prices of the above firms, in the past five years 


       Goto, 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

       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.

 Ri = Rf + βi * (Rm - Rf) ------ CAPM model

Ri = Expected return of investment

Rf = Risk-free rate

βi = Beta of the investment

Rm = Expected return of market

(Rm - Rf) = Market risk premium


 CAPM calculator


Topic 3 Normal Distribution Predict Stock Returns (FYI only)

 Stock Price Normal Distribution (FYI)  (

For example: from our in class exercise









standard deviation




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:



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 (rm rf) 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



Strong and moderate Economic Growth




 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:



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

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






Expected return calculator



Holding Period Return Calculator



CAPM Model Calculator


Two Stock Portfolio Return and Standard Deviation




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,
  • pi = the probability of state i,
  • R1i = the return on stock 1 in state i,
  • E[R1] = the expected return on stock 1,
  • R2i = 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



#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, NVIDIAs 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. NVIDIAs GPUs are very versatile in AI applications, which was an unintended benefit of the companys 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 NVIDIAs 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



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% yearoveryear 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.





Chapter 7 Bond pricing





Yield Curve 10/10/2022


Understanding the yield curve (youtube)



Balance Sheet of WalMart


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




Chapter 7 Study guide  

1.      Go to  , the bond market data website of FINRA to find bond information. For example, find bond sponsored by Wal-mart

Or, just go to Investor center  market data  bond  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





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 bonds 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 IBMs 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 bonds YTM?  3.09%

2.                  IBM 10 year 4% semi_annual coupon bond is selling for $950. How much is this IBM bonds 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)






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



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



           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, its 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.


Whats 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. Theres 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.


Thats 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

Its a good time to revisit your portfolios 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


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





Part I Dividend payout and Stock Valuation


For class discussion:

        Why can we use dividend to estimate a firms intrinsic value?

    Are future dividends predictable?



F Dividend History

         EX-DIVIDEND DATE 08/10/2022

         DIVIDEND YIELD 4.92%

         ANNUAL DIVIDEND $0.60