FIN301,FIN 509 & FIN510 Class Web Page, Summer'21
Weekly SCHEDULE, LINKS, FILES and Questions
Week 
Coverage, HW, Supplements 
Required 
Equations and
Assignments 

Weekly
Thursday class url: https://us.bbcollab.com/guest/e16136f1cab14057ba2f68d150977a7d Weekly
Saturday Q&A (78 pm) https://us.bbcollab.com/guest/02cf97530549475087efccd04a8927ce Class Schedule:



Week 0 
Market
Watch Game 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! Market Watch Tutorial
Stock Market Competition 2018 NHSA (youtube)

Preclass assignment: Set up marketwatch.com account and have
fun 

Week1,2 
Chapter 5 Time value of money The time value of money 
German Nande (youtube)
Week 1 in class exercise (word file) Solution Concept of FV, PV,
Rate, Nper Calculation of FV, PV,
Rate, Nper Concept of interest
rate, compounding rate, discount rate Chapter 6 Time Value of Money 2 Concept of PMT, NPV Calculation of FV, PV,
Rate, Nper, PMT, NPV, NFV Concept of EAR, APR Calculation of EAR,
APR HOMEWORK of Chapters 5
and 6 1. 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) 2. The
condominium at the beach that you want to buy costs $249,500. You plan to
make a cash down payment of 20 percent and finance the balance over 10 years
at 6.75 percent. What will be the amount of your monthly mortgage
payment? ($2,291.89) 4. 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)
(Hint: Bridget’s is an annuity due, so abs(fv(8%/12, 10*12, 150, 0,
1))  type =1; Jordan’s is an ordinary annuity, so abs(fv(8%/12, 10*12, 175,
0)  type =0, or omitted. There is a mistake in the help video for this
question. Sorry for the mistake.) 14. What is the
future value of weekly payments of $25 for six years at 10 percent? ($10,673.90) 15. At the end of
this month, Bryan will start saving $80 a month for retirement through his
company's retirement plan. His employer will contribute an additional $.25
for every $1.00 that Bryan saves. If he is employed by this firm for 25 more
years and earns an average of 11 percent on his retirement savings, how much
will Bryan have in his retirement account 25 years from
now? ($157,613.33) 16. Sky
Investments offers an annuity due with semiannual payments for 10 years at 7
percent interest. The annuity costs $90,000 today. What is the amount of each
annuity payment? ($6,118.35) 17. Mr. Jones
just won a lottery prize that will pay him $5,000 a year for thirty years. He
will receive the first payment today. If Mr. Jones can earn 5.5 percent on
his money, what are his winnings worth to
him today? ($76,665.51) 18. You want to
save $75 a month for the next 15 years and hope to earn an average rate of
return of 14 percent. How much more will you have at the end of the 15 years
if you invest your money at the beginning of each month rather than the end
of each month? ($530.06) 19. What is the
effective annual rate of 10.5 percent compounded
semiannually? (10.78%) 22. What is the
effective annual rate of 12.75 percent compounded daily? (13.60 percent) 23. Your
grandparents loaned you money at 0.5 percent interest per month. The APR on
this loan is _____ percent and the EAR is _____ percent. (6.00; 6.17) FYI only: help for homework Part 1(Qs
12) Part 2(Qs
48) Part 3(Qs 912) Part 4(Qs
1316) Part 5(Qs
1720) Part 6(Qs 2124) (Q13: Bridget’s is an annuity
due, so abs(fv(8%/12, 10*12, 150, 0, 1))  type
=1; Jordan’s is an ordinary annuity, so abs(fv(8%/12, 10*12, 150, 0)  type
=0, or omitted. There is a mistake in the help video for this question. Sorry
for the mistake.) Quiz 1 Help Videos 
Calculators Time
Value of Money Calculator © 2002  2019 by Mark A. Lane,
Ph.D. 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)) EAR = (1+APR/m)^m1 APR = (1+EAR)^(1/m)*m Excel Formulas To get FV, use FV
function. =abs(fv(rate, nper, pmt, pv)) To get PV, use PV
function = abs(pv(rate, nper, pmt, fv)) To get r, use rate
function = rate(nper, pmt, pv, fv) To get number of years, use nper function = nper(rate, pmt, pv, fv) To get annuity payment, use PMT
function = abs(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 APR = nominal(effective rate, npery) 

Week3 
Chapter
7 Bond Pricing Simplified Balance Sheet of WalMart
https://www.wsj.com/marketdata/quotes/WMT/financials/annual/balancesheet 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? How
Bonds Work (video) Investing
Basics: Bonds(video) FINRA – Bond market information http://finramarkets.morningstar.com/BondCenter/Default.jsp WALMART STORES INC
http://finramarkets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104227&symbol=WMT.GP Coupon
Rate
7.550 % Maturity
Date
02/15/2030
Credit and Rating
Elements
Classification
Elements
Special
Characteristics
Issue
Elements
Bond
Elements
For class discussion: Interest rates are
low. So, shall you invest in short
term bond or long term bond? In class exercise: 1.
Find
bonds sponsored by WMT ·
just go to www.finra.org, è Investor center è market data è bond è corporate bond ·
Search for Walmart bonds For
discussion: ·
What are the ratings of the WMT bonds? How does the rating
agency rate a bond? Altman Z Score video
·
Why some WMT bonds are priced higher than the par value, while
others are priced at a discount? ·
Why some WMT bonds have higher coupon rates than other bonds?
How does WMT determine the coupon rates? ·
Why some WMT bonds have higher yields than other bonds? Does a
bond’s yield change daily? ·
Which of the WMT bonds are the most attractive one to you? Why? http://finramarkets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C610043&symbol=WMT4117477 2. 2.
Understand what is coupon, coupon rate, yield, yield to maturity, market price,
par value, maturity, annual bond, semiannual bond, current yield. 3. 3.
Understand how to price bond Bond
price = abs(pv(yield, maturity, coupon, 1000))  annual coupon Bond
price = abs(pv(yield/2, maturity*2, coupon/2,
1000))  semiannual coupon Also change the yield and observe the
price changes. Summarize the price change pattern and draw a graph to
demonstrate your findings. Again, when yield to maturity of
this semi_annual coupon bond is
4%, 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 Bond
Calculator (www.jufinance.com/bond) For example, when the annual coupon bond
is selling for $1,100, what is its return to investors? For example, when the semiannual
coupon bond is selling for $1,100, 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. a. Who
are Moody, S&P and Fitch? b. What
is WMT’s rating? c. Is
the rating for WMT the highest? d. Who
earned the highest rating? Supplement: Municipal Bond For
class discussion: ·
Shall you invest in municipal bonds? ·
Are municipal bonds better than investment
grade bonds? The risks investing in a bond ·
Bond investing: credit Risk (video) ·
Bond investing: Interest rate risk (video) ·
Bond investing: increased risk
(video) Market data website: 1. FINRA http://finramarkets.morningstar.com/BondCenter/Default.jsp (FINRA bond market
data) 2. WSJ Market watch on Wall Street Journal has
daily yield curve and bond yield information. http://www.marketwatch.com/tools/pftools/ https://www.youtube.com/watch?v=yph8TRldW6k 3. Bond Online http://www.bondsonline.com/Todays_Market/ Homework 1. Firm AAA’s bonds
price = $850. Coupon rate is 5% and par is $1,000. The bond has
six years to maturity. Calculate for current yield? (5.88%) 2. For a zero
coupon bond, use the following information to calculate its yield to
maturity. (14.35%) Years
left to maturity = 10 years. Price = $250. 3. For a
zero coupon bond, use the following information to calculate its price. ($456.39)
Years left to maturity = 10 years. Yield = 8%. 4. Imagine that an annual
coupon bond’s coupon rate = 5%, 15 years left. Draw priceyield profile. (hint: Change interest rate, calculate new price and draw
the graph). 5. IBM 5 year 2% annual coupon bond is
selling for $950. How much this IBM bond’s YTM? 3.09% 6. IBM 10 year
4% semiannual coupon bond is selling for $950. How much is
this IBM bond’s YTM? 4.63% 7. IBM 10 year 5% annual coupon
bond offers 8% of return. How much is the price of this
bond? 798.7 8. IBM 5 year 5% semiannual coupon
bond offers 8% of return. How much is the price of this bond? $878.34 9. IBM 20 year zero
coupon bond offers 8% return. How much is the price of this bond? 208.29 10. 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? (8.90%) 11. 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? ($895.43) 12. 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) 13. 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 yield to maturity? (6.29%) 14. 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%) Videos
 homework help Part I Q1Q2 Q3Q4 Q5Q8 Q9Q14 Quiz
2 Help
Video 
Bond Pricing Formula (FYI)
Bond Pricing Excel Formula 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 Low interest on Walmart
bonds not worthy of investment (FYI) MONEY
& INVESTING June
28, 2018 ericBRETAN https://naples.floridaweekly.com/articles/lowinterestonwalmartbondsnotworthyofinvestment/ What do
you do if you need a few extra bucks and don’t have
the money? If it is a small purchase, you may put it on your credit card. If
it is something larger, you may have to go to the bank and get a loan. But
what if you are a business and need more than a few extra bucks? What if you
need $16 billion — what do you do then? Walmart recently faced this problem after its acquisition
of the Indian Ecommerce company Flipkart Group.
The solution was to issue corporate bonds to the public in return for the
cash needed to fund the purchase. But just what are corporate bonds, how are
they priced and issued, and are they a good investment? A bond
is simply an investment where the investor loans money to a borrower in
exchange for a set interest rate for a given period of time. At the bond’s maturity, the investor receives the principal back as
well. For bonds issued by corporations, typically interest is paid every six
months although some bonds pay quarterly or monthly interest payments.
Corporations issue bonds that mature anywhere from less than a year (this
debt is often called commercial paper) to 30 years or more. Large companies
like Disney or CocaCola have even issued 100year maturity bonds. To
issue a bond, a company typically will meet with a bank or investment bank to
structure the investment. First, the parties will determine the size of the
bond. If the company borrows too much, it may hurt its credit rating or have
trouble making the interest payments. If it borrows too little, the borrower
may not have the funds to maximize its growth or business opportunities.
Second, the company and bank will determine the appropriate maturity for the
bonds. Factors such as the use of the funds, overall interest rate
environment, and credit worthiness of the borrower all will affect this
decision. Finally,
the bank will price the bonds. Most bonds are issued at par meaning they are
issued at the face value of the bond, often $1,000. The “price” of the bond is then the interest rate that the buyer of
the bond will receive. For example, a company can issue a 10 year bond at par
that is priced at an interest rate of 6.2 percent. The interest rate of a
corporate bond is determined by two factors. The first is the overall rate
environment, typically determined by U.S. government debt rates. The second is
the credit worthiness of the issuer, which determines the additional interest
that investors demand to hold the bonds over Treasury rates. This “spread” can be very small for well
capitalized and stable companies like Microsoft or Apple or very large for risky
biotech firms. After
the interest rate of the bonds is set, the investments are sold to the public
at the face value of the bonds. Going forward, however, the bonds will trade
on the open market and will either trade at a premium or discount to the face
value. If overall interest rates go up or the credit worthiness of the
company declines, the bond’s value will decline as
investors sell the bonds to buy more stable bonds or bonds with higher
interest rates. Conversely, if interest rates decline or the company credit
strengthens, the bonds’ value will rise as investors
buy the bond. In the
case of Walmart, several maturities of bonds were
offered to investors to fund the staggering $16 billion needed to fund its
acquisition. The longest dated bonds, 30 years to maturity, were priced at
just 1.05 percent over the 30 year Treasury rate or around 4.1 percent. This
very low rate speaks very highly of the credit worthiness of Walmart. However, one of the main bond credit ratings
companies, S&P, stated that the company’s strong
AA credit rating may be placed under review because of the significant
acquisitions the company has recently made and the resulting debt issued to
pay for them. Therefore, I would be hesitant to tie up my money for 30 years
at such a low interest rate and feel that there are plenty of better
investments to earn a better risk adjusted return. ¦ — Eric Bretan, the co owner of Rick’s
Estate & Jewelry Buyers in Punta Gorda, was a
senior derivatives marketer and investment banker for more than 15 years at
several global banks. 

Week 4 
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? Ford’s dividends: https://www.nasdaq.com/marketactivity/stocks/f/dividendhistory
· Refer to the following table for Walmart (WMT’s dividend history) http://stock.walmart.com/investors/stockinformation/dividendhistory/default.aspx
Stock Splits
WalMart Stores, Inc. was incorporated on Oct. 31, 1969. On
Oct. 1, 1970, Walmart offered 300,000 shares of its
common stock to the public at a price of $16.50 per share. Since that time,
we have had 11 twoforone (2:1) stock splits. On a purchase of 100 shares at
$16.50 per share on our first offering, the number of shares has grown as
follows:
Can you
estimate the expected dividend in 2022? And in 2023? And on and on… Can you write down the
math equation now? WMT stock price = ? Can you calculate now? It
is hard right because we assume dividend payment goes to infinity. How can we
simplify the calculation? We can assume that
dividend grows at certain rate, just as the table on the right shows. Discount rate is r (based
on Beta and CAPM that we will learn in chapter 13) From finance.yahoo.com What does each item indicate? From finviz.com https://finviz.com/quote.ashx?t=WMT Part II: Constant
Dividend GrowthDividend growth model Calculate stock prices 1) Given next dividends and price Po= Po= + Po= + + Po= + ++ …… Refer to http://www.calculatinginvestor.com/2011/05/18/gordongrowthmodel/ · Now let’s apply this
Dividend growth model in problem solving. Constant dividend growth
model calculator (www.jufinance.com/stock) Equations ·
Po= D1/(rg) or Po= Do*(1+g)/(rg) ·
r = D1/Po+g = Do*(1+g)/Po+g ·
g= rD_{1}/Po = r Do*(1+g)/Po ·
·
Capital Gain yield = g ·
·
Dividend Yield = r – g = D_{1} / Po = Do*(1+g) / Po ·
D_{1}=Do*(1+g); D_{2}= D_{1}*(1+g);
D_{3}=D_{2}*(1+g)… Exercise: 1.
Consider the
valuation of a common stock that paid $1.00 dividend at the end of the last
year and is expected to pay a cash dividend in the future. Dividends are
expected to grow at 10% and the investors required rate of return is 17%. How
much is the price? How much is the dividend yield? Capital gain yield? 2.
The current market
price of stock is $90 and the stock pays dividend of $3 with a growth rate of
5%. What is the return of this stock? How much is the dividend yield? Capital
gain yield? Part III:
NonConstant Dividend Growth Calculate stock prices 1) Given next dividends and price Po= Po= + Po= + + Po= + ++ …… Nonconstant dividend growth model calculator (https://www.jufinance.com/dcf/) Equations P_{n} = D_{n+1}/(rg) = D_{n}*(1+g)/(rg), since
year n, dividends start to grow at a constant rate. Where D_{n+1}= next dividend in year n+1; Do = just paid dividend in year n; r=stock return; g= dividend growth rate; Pn= current market price in year n; Po = npv(r, D_{1}, D_{2},
…, D_{n}+P_{n}) Or, Po = D_{1}/(1+r) + D_{2}/(1+r)^{2} + … +
(D_{n}+P_{n})/(1+r)^{n } In class exercise for nonconstant dividend growth model
(similar to quiz questions) 1. You
expect AAA Corporation to generate the following free cash flows over the
next five years:
Since
year 6, you estimate that AAA's free cash flows will grow at 6% per year.
WACC of AAA = 15% ·
Calculate the enterprise
value for DM Corporation. ·
Assume that AAA has $500 million
debt and 14 million shares outstanding, calculate its stock price. Answer:
2. AAA pays no dividend currently. However,
you expect it pay an annual dividend of $0.56/share 2 years from now with a
growth rate of 4% per year thereafter. Its equity cost = 12%, then its stock
price=? Answer: Do=0 D1=0 D2=0.56 g=4% after year 2 è P2 = D3/(rg), D3=D2*(1+4%) è P2 = 0.56*(1+4%)/(12%4%) = 7.28 r=12% Po=? Po = NPV(12%, D1, D2+P2), D2 = 0.56,
P2=7.28. SO Po = NPV(12%, 0,0.56+7.28) = 6.25 (Note: for nonconstant growth model,
calculate price when dividends start to grow at the constant rate. Then use
NPV function using dividends in previous years, last dividend plus price. Or
use calculator at https://www.jufinance.com/dcf/
) 3.
Required return =12%. Do = $1.00, and
the dividend will grow by 30% per year for the next 4 years. After t = 4, the dividend is expected to
grow at a constant rate of 6.34% per year forever. What is the stock price ($40)? (similar to quiz question) Answer: Do=1 D1 = 1*(1+30%) = 1.3 D2= 1.3*(1+30%) = 1.69 D3 = 1.69*(1+30%) = 2.197 D4 = 2.197*(1+30%) = 2.8561 D5 = 2.8561*(1+6.34%), g=6.34% P4 = D5/(rg) = 2.8561*(1+6.34%) /(12%
 6.34%) Po = NPV(12%, 1.3, 1.69,
2.197, 2.8661+2.8561*(1+6.34%) /(12%  6.34%)) = 40 Or use calculator at https://www.jufinance.com/dcf/
Part IV: How to
pick stocks? (FYI) How to
pick stocks – Does it work? PE ratio Stock screening tools ·
Reuters stock screener to help select stocks http://stockscreener.us.reuters.com/Stock/US/ ·
FINVIZ.com http://finviz.com/screener.ashx use screener on finviz.com to narrow down your choices of
stocks, such as PE<15, PEG<1, ROE>30% ·
WSJ stock screen http://online.wsj.com/public/quotes/stock_screener.html ·
Simply the Web's Best Financial Charts You can find analyst rating from MSN money For instance, ANALYSTS RATINGS Zacks average brokerage recommendation is Moderate Buy
Summary of stock
screening rules from class discussion PEG<1 PE<15 (? FB’s PE>100?) Growth
rate<20 ROE>10% Analyst
ranking: strong buy only Zacks average =1 (from Ranking stocks using PEG
ratio) current
price>5 How to pick stocks Capital Asset Pricing Model (CAPM)Explained https://www.youtube.com/watch?v=JApBhv3VLTo Ranking stocks using PEG ratio https://www.youtube.com/watch?v=bekW_hTehNU HOMEWORK 1.
Northern Gas
recently paid a $2.80 annual dividend on its common stock. This dividend
increases at an average rate of 3.8 percent per year. The stock is currently
selling for $26.91 a share. What is the market rate of return? (14.60
percent) 2. Douglass Gardens pays an annual dividend that is expected
to increase by 4.1 percent per year. The stock commands a market rate of return
of 12.6 percent and sells for $24.90 a share. What is the expected amount of
the next dividend? ($2.12) 3. IBM just paid $3.00 dividend per share to investors. The
dividend growth rate is 10%. What is the expected dividend of the next year? ($3.3) 4. The current market price of stock is $50 and the stock is
expected to pay dividend of $2 with a growth rate of 6%. How much is the
expected return to stockholders? (10%) 5.
Investors of Creamy Custard common stock earns 15% of return. It just paid a dividend of
$6.00 and dividends are expected to grow at a rate of 6% indefinitely. What
is expected price of Creamy Custard's stock? ($70.67) Homework
Video of this week Quiz 3 Help Video (have nonconstant growth dividend
questions) Part I Part II Part
III Part IV

P/E Ratio Summary by
industry (FYI)  Thanks to Dr Damodaran Data Used: Multiple data services Date of Analysis: Data used is as of January 2021 Download as an excel file instead: http://www.stern.nyu.edu/~adamodar/pc/datasets/pedata.xls For global datasets: http://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html
