FIN301 Class Web Page, Spring ' 23
Instructor: Maggie Foley
Jacksonville University
Weekly SCHEDULE, LINKS, FILES and Questions
Chapter 
Coverage, HW, Supplements 
Required 
References 

Chapter
1, 2 
Chapter 1: Introduction Flow
of funds describes the financial assets flowing from various sectors through financial
intermediaries for the purpose of buying physical or financial assets. *** Household, nonfinancial business, and our government Financial
institutions facilitate exchanges of funds and financial products. ***
Building blocks of a financial system. Passing and transforming funds and
risks during transactions. ***
Buy and sell, receive and deliver, and create and underwrite financial
products. ***
The transferring of funds and risk is thus created. Capital utilization for
individual and for the whole economy is thus enhanced. 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 Taiwan and China · Supply chain issues · Used car price · ? There's a real probability
of recession in 2023, says Thornburg's Jason Brady (youtube)
Chapter 2 Introduction
of Financial Market 1.
What
are the six parts of the financial markets
Money: · To pay for purchases and store wealth (fiat money, fiat currency) Financial Instruments: · To transfer resources from savers to investors and to transfer risk to those best equipped to bear it. Financial
Markets: · Buy and sell financial instruments · Channel funds from savers to investors, thereby promoting economic efficiency · Affect personal wealth and behavior of business firms. Example? Financial Institutions. · Provide access to financial markets, collect information & provide services · Financial Intermediary: Helps get funds from savers to investors Central Banks · Monitor financial Institutions and stabilize the economy Regulatory Agencies · To provide oversight for financial system. 2.
What
are the five core principals of finance
Introduction to Capital Markets  ION Open Courseware
(Video) How the stock market works (video) No homework
for 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 Homework (due with the
first mid term) Homework
video #1 on 1/20/2023  in class Homework
Video #2 on 1/27/2023  in class Homework
Video #3 on 2/3/2023  in class 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 15year, 8
percent annuity at a cost of $70,000. The annuity will pay annual payments. What
is the amount of each payment? ($8,178.07) 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) Time Value of Money
Calculator 

Chapter 3 Financial Statement Analysis Explaining 4
Financial Statements (youtube)
*************
Introduction *************** Let’s
compare Nike with GoPro based on 10K (www.nasdaq.com) https://www.nasdaq.com/marketactivity/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/marketactivity/stocks/gpro/financials
GoPro * GoPro
Stock performance ( finance.yahoo.com
) http://www.jufinance.com/10k/bs http://www.jufinance.com/10k/is http://www.jufinance.com/10k/cf Ratio Analysis (plus balance sheet, income statement) https://www.jufinance.com/ratio 

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

In Millions of USD (except for per share items) 
52 weeks ending 20140202 
Net Income/Starting Line 
5,385.00 
Depreciation/Depletion 
1,757.00 
Amortization 
 
Deferred Taxes 
31 
NonCash Items 
228 
Changes in Working Capital 
289 
Cash from Operating Activities 
7,628.00 
Capital Expenditures 
1,389.00 
Other Investing Cash Flow Items, Total 
118 
Cash from Investing Activities 
1,507.00 
Financing Cash Flow Items 
37 
Total Cash Dividends Paid 
2,243.00 
Issuance (Retirement) of Stock, Net 
8,305.00 
Issuance (Retirement) of Debt, Net 
3,933.00 
Cash from Financing Activities 
6,652.00 
Foreign Exchange Effects 
34 
Net Change in Cash 
565 
Cash Interest Paid, Supplemental 
639 
Cash Taxes Paid, Supplemental 
2,839.00 
Discussion:
2. What does net change in cash mean?
Now
let’s learn how to calculate cash changes in each session
Source
of cash
Use
of Cash
Cash
Flow from Operations: Five Steps
1. Add back depreciation.
2. Subtract (add) any increase (decrease) in accounts
receivable.
3. Subtract (add) any increase (decrease) in inventory.
4. Subtract (add) any increase (decrease) in other current
assets.
5. Add (subtract) any increase (decrease) in accounts payable
and other accrued expenses
Chapter 3 HW (due with the SECOND midterm exam)
Video
on 2/17/2023 (Friday) – in class
Video
on 2/24/2023 (Friday) – in class
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. Longterm 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 = 1202010=90
Chapter 4: Ratio
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)
(optional)
EPS (earning per share)
ROA (Return on Asset = NI/TA, ROA>10% should be a nice
benchmark)
ROE (return on equity = NI/TE, ROE>15% should be good)
Current ratio (liquidity measure. = CA/CL, has to be
greater than one)
Quick ratio (liquidity measure. = (CAInventory)/CL, has to be greater
than one)
Debt Ratio (Leverage measure. = TD/TA, need to be optimal, usually
between 30% and 40%)
Gross margin (profit measure. = EBITDA/sales, or = Gross margin/sales,
has to be positive)
Operating margin (profit measure. = EBIT/sales, or = operating
income/sales, has to be positive)
Net profit margin (profit measure. = NI/sales, has to be
positive)
Payout ratio (= dividend / NI, measures distribution to shareholders.
No preferences. Usually value stocks have high payout ratio; Growth stocks
have low payout ratio).
Total assets turnover = Sales/TA
Inventory turnover ratio = Sales/Inventory
Fixed assets turnover ratio = Cost of goods sold / Fixed assets
Nike
 Valuation Valuation P/E
Ratio (TTM) 35.96 Price
to Sales Ratio 4.09 Price
to Book Ratio 12.22 EPS
(recurring) 3.74 EPS
(basic) 3.83 Efficiency Current
Ratio 2.63 Quick
Ratio 1.84 Cash
Ratio 1.21 Profitability Gross
Margin +46.13 Operating
Margin +14.49 Return
on Assets 15.49 Return
on Equity 43.11 Capital Structure Total
Debt to Total Assets 31.32 LongTerm
Debt to Assets 0.29 
https://www.wsj.com/marketdata/quotes/NKE/financials
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 the SECOND midterm exam)
1. 1 .A firm has total equity
of $2000 and a debtequity 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 Ratio (TTM) 12.92 Price to Sales Ratio 1.45 Price to Book Ratio 2.62 Price to Cash Flow Ratio 7.34 Total Debt to EBITDA 1.79 EPS (recurring) 2.28 EPS (basic) 2.41 Efficiency Total Asset Turnover 1.13 Liquidity Current Ratio 1.65 Quick Ratio 1.46 Cash Ratio 1.13 Profitability Gross Margin +41.20 Operating Margin +9.96 Net Margin +31.97 Return on Assets 36.28 Return on Equity 89.23 Return on Total Capital 16.54 Capital Structure Total Debt to Total Assets 22.63 LongTerm Debt to Assets 0.12 

https://www.wsj.com/marketdata/quotes/GPRO/financials 

First
Mid Term Exam – 2/22/2023 (chapters 5, 3, 4)
First Mid Term Exam Study Guide
Multiple Choice Questions (25*4 = 100. There are 26 questions
in total, with one question being optional and not counted towards your
grade.)
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 (Duke
energy, Disney, McDonald, S&P500 (Raw data), will be updated based on the
new stocks chosen in class (template))
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 “2/1/2018” and “2/1/2023”, 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
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} =
Riskfree rate
β_{i} =
Beta of the investment
R_{m} =
Expected return of market
(R_{m} 
R_{f}) = Market risk premium
Stock Price Normal Distribution (FYI) ( https://homepage.divms.uiowa.edu/~mbognar/applets/normal.html)
For
example: from our in class exercise

McDonald 
DISNEY 
Duke Energy 
Mean 
1.23% 
0.52% 
0.86% 
standard
deviation 
5.52% 
9.99% 
5.43% 
Excel
command to get the probability to earn less than 0% for MCD:
=NORM.DIST(0%,
1.23%, 5.52%, 1)
Excel
command to get the probability to earn less than 0% for DIS:
=NORM.DIST(0%,
0.52%, 9.99%, 1)
Excel
command to get the probability to earn less than 0% for DUKE:
=NORM.DIST(0%,
0.86%, 5.43%, 1)
HW
of chapter 6 (Due with the second mid
Term exam)
Chapter 6 Homework
Homework
help video 1(Questions 14) – 3/3/2023 – in class
Homework
help video 2 (the remaining homework) – 3/10/2023 – in class
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
riskfree rate of return is 4%, and the market risk premium is 9%. Joe's
holding period return is? (ANSWER:
15%)
3. You
own a portfolio with the following expected returns given the various states
of the economy. What is the overall portfolio expected return? (ANSWER:
9.05%)
State
of
economy probability
of state of
economy rate
of return if state occurs
Boom 27% 14%
Normal 70% 8%
Recession 3% 11%
4)
The prices for the Electric Circuit Corporation for the first quarter of 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 riskfree rate of
return is 3.9 percent and the market risk premium (r_{m} –r_{f})
is 6.2 percent. What is the expected rate of return on a stock with a beta of
1.21? (ANSWER: 11.4%)
10. You own a portfolio consisting of the stocks below.
Stock Percentage
of
portfolio Beta
1. 20% 1
2. 30% 0.5
3. 50% 1.6
The risk free rate is 3% and
market return is 10%.
a. Calculate
the portfolio beta. (ANSWER:
1.15)
b. Calculate
the expected return of your portfolio. (ANSWER: 11.05%)
11. Computing holding period return for Jazman and
Solomon for period 1 through 3 (bought in period 1 and sold in period 3).
Show the holding period returns for each company. (ANSWER: 50%, 25%)
Period Jazman Solomon
1 $10 $20
2 $12 $25
3 $15 $15
12. Calculate expected return
(ANSWER:
12%)
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 WalMart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment.(ANSWER: 2.5%)
14. Rank the risk of the following cases, from
the least risky one the most risky one
(ANSWER: 1, 3, 2)
1) Invest
$10,000 in Treasury bill with guaranteed return of 4%.
2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment.
3) Investment
$10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment.
15. An
investor currently holds the following portfolio:
Amount
Invested
8,000
shares of
Stock A $10,000 Beta = 1.5
15,000
shares of Stock B $20,000 Beta = 0.8
25,000
shares of Stock C $20,000 Beta = 1.2
Calculate
the beta for the portfolio.(ANSWER:
1.1)
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
Holding
Period Return Calculator
Two
Stock Portfolio Return and Standard Deviation
FYI only
W1 and W2 are the percentage of each stock in the
portfolio.
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/highbetastocks/
#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 largecap 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 earningspershare increased 26% yearoveryear.
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 earningspershare 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 cloudbased human capital management
(HCM) asaservice 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%
yearoveryear. Recurring revenue grew 31%, and represented 98% of total
revenue. Earningspershare of $1.26 increased 30% compared with $0.97 in the
yearago quarter.
PAYC
has a Beta
value of 1.71.
#3: ServiceNow (NOW)
ServiceNow
is a highquality 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%
yearoveryear 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
earningspershare 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 selfdriving 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 longterm 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/negativebetastocks/
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
Yield Curve http://finramarkets.morningstar.com/BondCenter/Default.jsp 3/19/2023
Understanding the yield
curve (youtube)
Balance Sheet of WalMart https://www.nasdaq.com/marketactivity/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://finramarkets.morningstar.com/BondCenter/Default.jsp
Chapter 7 Study guide
1. Go to http://finramarkets.morningstar.com/BondCenter/Default.jsp , the bond market data website of FINRA to find bond
information. For example, find bond sponsored by Walmart
Or, just go to www.finra.org, è Investor center è market data è bond è corporate bond
Corporate
Bond
Understand what is coupon,
coupon rate, yield, yield to maturity, market price, par value, maturity,
annual bond, semiannual bond, current yield. https://finramarkets.morningstar.com/BondCenter/
2.
Refer to the following bond at http://finramarkets.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))
 semiannual coupon
Also change the yield and observe the price changes.
Summarize the price change pattern and draw a graph to demonstrate your
findings.
Again, when yield to maturity of this semi_annual coupon
bond is 3%, how should this WMT bond sell for?
4. Understand how to
calculate bond returns
Yield to maturity = rate(maturity,
coupon, market price, 1000) – annual coupon
Yield to maturity = rate(maturity*2,
coupon/2, market price, 1000)*2 – semiannual coupon
For example, when the annual coupon bond is selling for
$1,200, what is its return to investors?
For example, when the semiannual coupon bond
is selling for $1,200, what is its return to investors?
5. Current yield: For
the above bond, calculate current yield.
6. Zero coupon bond:
coupon=0 and treat it as semiannual coupon bond.
Example:
A ten year zero coupon bond is selling for $400. How much is its yield to
maturity?
A ten year zero coupon bond’s yield to maturity is 10%.
How much is its price?
7. Understand
what is bond rating and how to read those ratings. (based on z
score. What is z score?)
a. Who are Moody,
S&P and Fitch?
b. What is IBM’s
rating?
c. Is the rating
for IBM the highest?
d. Who earned the
highest rating?
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 midterm)
Homework video
3/24/2023 (in class)
1. IBM
5 year 2% annual coupon bond is selling for $950. How much
this IBM bond’s YTM? 3.09%
2. IBM
10 year 4% semi_annual coupon bond is selling for $950. How
much is this IBM bond’s YTM? 4.63%
3. IBM
10 year 5% annual coupon bond offers 8% of return. How much
is the price of this bond? 798.7
4. IBM
5 year 5% semiannual coupon bond offers 8% of return. How
much is the price of this bond? $878.34
5. IBM
20 year zero coupon bond offers 8% return. How much is the price of this
bond? 208.29
6. Collingwood
Homes has a bond issue outstanding that pays an 8.5 percent coupon and
matures in 18.5 years. The bonds have a par value of $1,000 and a market
price of $964.20. Interest is paid semiannually. What is the yield to
maturity? 8.9%
7. Grand
Adventure Properties offers a 9.5 percent coupon bond with annual payments.
The yield to maturity is 11.2 percent and the maturity date is 11 years from
today. What is the market price of this bond if the face value is
$1,000? 895
8. The
zero coupon bonds of D&L Movers have a market price of $319.24, a face
value of $1,000, and a yield to maturity of 9.17 percent. How many years is
it until these bonds mature? 12.73 years
9. A
zero coupon bond with a face value of $1,000 is issued with an initial price
of $212.56. The bond matures in 25 years. What is the 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 (semiannual
coupon bond):
Price=abs(pv(yield to maturity/2, years
left to maturity*2, coupon rate*1000/2, 1000)
To calculate yield to maturity (semiannual
coupon bond):
Yield to maturity = rate(years left to
maturity*2, coupon rate *1000/2, price, 1000)*2
To calculate number of years left(annual
coupon bond)
Number of years =nper(yield to
maturity, coupon rate*1000, price, 1000)
To calculate number of years left(semiannual
coupon bond)
Number of years =nper(yield to
maturity/2, coupon rate*1000/2, price, 1000)/2
To calculate coupon (annual coupon bond)
Coupon = pmt(yield to maturity, number of
years left, price, 1000)
Coupon rate = coupon / 1000
To calculate coupon (semiannual coupon bond)
Coupon = pmt(yield to maturity/2, number of
years left*2, price, 1000)*2
Coupon rate = coupon / 1000
Math Formula (FYI)
C: Coupon, M: Par, $1,000; i: Yield to maturity; n:
years left to maturity
For Semiannual, F=2 for semiannual coupon
M: Par, $1,000; i: Yield to maturity; n:
years left to maturity
Bond calculator (Thanks to Dr. Lane)
March 15, 20233:00 AM EDT
Column: Deeply inverted US curve flashed bank danger for months
(FYI)
By Jamie McGeever
It's a lesson many investors
seem reluctant to learn as there's always a tendency to assume it's different
this time.
But whether it's stress in the
banks, financial markets or the wider economy, an inversion of longterm bond
yields below shortterm funding rates is almost always a signal that a
creditdriven economy faces trouble ahead. And that's mainly because it
causes the problem.
The volatility crashing
through the U.S. banking sector, which triggered late night intervention from
U.S. regulators on Sunday to curb a contagious flight of deposits from
smaller, weaker banks to larger ones, is just the latest example.
The implosion of Silicon
Valley Bank (SVB) SIVB.O  America's 16th largest bank  prompted the
Treasury and Federal Deposit Insurance Corp (FDIC) on Sunday to say that all customers
will be able to access their funds, while the Fed unveiled a new program
offering institutions cheap and easy access to loans.
These steps were taken after
SVB was shut down, forced to realize losses on its holdings of longerdated
Treasuries at the same time its deposit base was under threat. The aim was to
ward off contagion spreading through the $23 trillion banking sector.
Ultimately, though, liquidity
does not guarantee profitability. If longerterm profitability is
authorities' goal, they may have to engineer a lasting resteepening of the
yield curve back into positive territory
Deutsche Bank's Jim Reid says
inverted curves are almost always an ominous sign  they signal an eventual
unwind of carry trades somewhere in the financial system or economy, meaning
investors and economic agents are about to draw in their horns.
"I don't care why the
curve inverts, I just care that it does," he said on Monday.
While SVB's failure may not be
a direct casualty of the inverted yield curve, an inverted curve is a sign
that wider financial conditions are not so easy, presenting banks with a far
more challenging economic and financial environment.
There are several measurements
of the gap between short and longerdated yields but the '2year/10year' is
the benchmark  it goes back decades, captures highly liquid parts of both
ends of the curve, and its inversion has preceded every recession of the past
45 years.
The twoyear Treasury yield
has been higher than the 10year yield since last July as the Fed has
embarked on its most aggressive rateraising campaign in decades. The gap
reached 110 basis points (bps) last week, the deepest inversion since 1981.
In that light, Treasury
Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and FDIC Chairman
Martin Gruenberg may have welcomed the 2s/10s curve steepening by 40 bps on
Monday, the most in decades  only another 50 bps to go and the curve will be
sloping up for the first time since last summer.
Banks make money when the
yield curve slopes positively, borrowing cheaply via customer deposits,
central bank windows or the short end of the curve, and lending longer term
at higher rates  a classic 'carry trade'.
A downwardsloping curve
stymies this 'carry' and curbs lending, and the consequences are clear when
that lasts for as long as eight months.
Analysts at JP Morgan say
regulators' actions successfully targeted a specific carry trade in a
specific area, but there are many others and not all can be backstopped.
Private equity, venture capital,
auto loans, levered loans, and credit card lending have all been profitable
in the era of cheap shortterm funding. But rising financing costs put the
squeeze on them and hasten the end of the cycle.
"We believe we are in
that stage and remain negative on risky asset classes," the JP Morgan
analysts wrote in a note on Monday.
REASONS TO BE FEARFUL?
When banks' cost of funding
exceeds the rate of return, they will naturally be less inclined to lend. Tighter
credit conditions and lending standards mean consumers borrow and spend less,
and firms hire and invest less and the risk of recession increases.
There are good reasons for
caution right now.
Outstanding credit card debt
has hit its highest on record at almost $1 trillion, in nominal terms, and
average credit card rates have already hit a record high above 20%.
Average 30year mortgage rates
are back above 7%, having doubled in the last 18 months, while the personal
savings rate remains anchored near multiyear lows below 5%.
The Fed's last Senior Loan
Officer Survey shows that the net percentage of banks reporting tightening
standards for commercial and industrial loans in the fourth quarter of last
year jumped above 40%, levels consistent with past recessions.
"When you have record
inversions for a prolonged period of time it does point to slower financial
intermediation, slower credit and loan provisions," said Gregory Daco,
chief economist at EY.
(The opinions expressed here are those of the
author, a columnist for Reuters.)
Let’s have some fun with ChatGPT – generate Bond
Pricing Calculator by ChatGPT
Here are stepbystep instructions:
1. Ask
ChatGPT to generate a bond pricing calculator using JavaScript in HTML
format. You can ask something like: "Hey ChatGPT, could you please
generate a bond pricing calculator using JavaScript in HTML format to
calculate the bond pricing, given face value, coupon rate, yield to maturity,
and years left to maturity?"
2. ChatGPT
should respond with the code for the calculator. Copy the code to your
clipboard.
3. Open
Notepad or any other text editor and paste the code into a new document.
4. Save
the file as an HTML file. You can name it anything you like, but make sure
the file extension is ".html". For example, you can name it
"bond_calculator.html".
5. Open
the saved HTML file in your web browser (e.g. Chrome, Firefox, etc.) by
doubleclicking on the file or rightclicking and selecting "Open
with". The bond calculator should load and be ready to use.
6. Test
the calculator by entering different values for all the inputs. Make sure the
calculated bond price is correct and matches your expectations.
7. If
you find any issues with the calculator, you can ask ChatGPT to generate it
again with the desired changes.
Or use the code from my experiment with
ChatGPT earlier this week to get bond prices.
<!DOCTYPE
html>
<html>
<head>
<title>Bond Pricing
Calculator</title>
<script
type="text/javascript">
function calculate() {
var
faceValue = parseFloat(document.getElementById("faceValue").value);
var
couponRate =
parseFloat(document.getElementById("couponRate").value) / 100;
var
yearsToMaturity =
parseFloat(document.getElementById("yearsToMaturity").value);
var yieldToMaturity
= parseFloat(document.getElementById("yieldToMaturity").value) /
100;
var
presentValue = 0;
var
annualInterest = couponRate * faceValue;
var
discountFactor = 1 / Math.pow(1 + yieldToMaturity, yearsToMaturity);
presentValue
= annualInterest * (1  discountFactor) / yieldToMaturity + faceValue *
discountFactor;
document.getElementById("result").innerHTML
= "Bond Price: $" + presentValue.toFixed(2);
}
</script>
</head>
<body>
<h1>Bond Pricing
Calculator</h1>
<p>Enter the following
information:</p>
<form>
<label
for="faceValue">Face Value:</label>
<input
type="number" id="faceValue"
value="1000"><br>
<label
for="couponRate">Coupon Rate (%):</label>
<input
type="number" id="couponRate" step="0.01"
value="5"><br>
<label
for="yearsToMaturity">Years to Maturity:</label>
<input
type="number" id="yearsToMaturity"
value="2"><br>
<label
for="yieldToMaturity">Yield to Maturity (%):</label>
<input
type="number" id="yieldToMaturity" step="0.01"
value="2"><br><br>
<input
type="button" value="Calculate"
onclick="calculate()">
</form>
<p
id="result"></p>
</body>
</html>
Chapter 8 Stock Valuation
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?
Ex/EFF DATE 
TYPE 
CASH AMOUNT 
DECLARATION DATE 
RECORD DATE 
PAYMENT DATE 
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 
https://www.nasdaq.com/marketactivity/stocks/f/dividendhistory
WalMart
Dividend History
· Refer to the following table for Walmart (WMT’s dividend history)
http://stock.walmart.com/investors/stockinformation/dividendhistory/default.aspx