FIN 509 & FIN510 Class Web Page, Summer'22

 

The Syllabus

  

Weekly SCHEDULE, LINKS, FILES and Questions

Week

Coverage, HW, Supplements

-       Required

Equations and Assignments

 

Weekly Thursday class url on blackboard collaborate:

https://us.bbcollab.com/guest/11cfd26fb4fa44f1ad5d390354662ed0

 

Weekly Office Hour on Blackboard collaborate (Sunday 5PM-6PM)

https://us.bbcollab.com/guest/23695fc6b73248baa62982746e98a6e9

 

 

Class Schedule:

 

 

 

Topic and Activities,

class video web links

Assignments and Key Due Dates

Week 1

6/16 at 6 pm #117

Time value of money, chapter 5

Class video link

Discussion Board #1 on market watch game, due by Sunday 7/10

Week 2

6/23 at 6 pm #117

 

Discounted Cash Flow Valuation, chapter 6

 

Class video link

 

 

Quiz 1, due by Sunday (6/26) 11:59 pm, start from Thursday at 1 AM (on blackboard in week2 folder)

 

Homework of chapters 5, 6

due by Sunday 7/10

Week 3

6/30 at 6 pm #117

 

Interest Rates and Bond Valuation, chapter 7

 

Class video link

 

 

Quiz 2, due by Sunday (7/3) 11:59 pm, start from Thursday at 1 AM (on blackboard in week3 folder)

 

Homework of chapter 7 due by Sunday 7/10

 

Week 4

7/7 at 6 pm #117

 

Stock valuation, chapter 8

 

Class video link

 

 

Quiz 3, due by Sunday (7/10) 11:59 pm, start from Friday at 1 AM (on blackboard in week4 folder)

 

Homework of chapter 8 due by 8/6

 

Week 5

7/14 at 6 pm #117

 

Capital Budgeting, WACC, chapters 9 &14

 

Class video link

 

Discussion Board # 2 on How can we bring down inflation, due by 8/6

 

Quiz 4 (only chapter 9), due by Sunday (7/17) 11:59 pm, start from Thursday at 1 AM (on blackboard in week5 folder)

 

 

Homework of chapter 9 due by 8/6

 

Week 6

7/21 at 6 pm #117

 

Chapter 13, risk and return

 

Class video link

Discussion Board # 3 on recession prediction due by 8/6

 

 

Quiz 5, due by Sunday (7/24) 11:59 pm, start from Thursday at 1 AM (on blackboard in week6 folder)

 

 

Homework of chapter 13 due by 8/6

 

Week 7

And Week 8

Part I

Review and Final

Video

       Final on 7/30 at 1 AM, on blackboard final folder, due by Sunday (8/7)11:59 pm

      Final prep video (on youtube)

Week 7

And Week 8

Part II

Chapter 2, chapter 3, not required

 

Class video link

 

 

 

 

Week 0

Market Watch Game 

  Use the information and directions below to join the game.

1.      URL for your game: 
https://www.marketwatch.com/game/fin509-22summer

 

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!

 

Pre-class assignment:

Set up marketwatch.com account and have fun

Week1,2

image002.jpg

 

 

 

 

Chapter 5 Time value of money 1

 

Week 1 in class exercise (word file)   Solution

 

Chapter 5 ppt 

 

The time value of money - German Nande (youtube)

 

Concept of FV, PV, Rate, Nper

Calculation of FV, PV, Rate, Nper

Concept of interest rate, compounding rate, discount rate

 

image001.jpg

 

 

Chapter 6 Time Value of Money 2

 

Chapter 6 PPT

 

Concept of PMT, NPV

Calculation of FV, PV, Rate, Nper, PMT, NPV, NFV

Concept of EAR, APR

Calculation of EAR, APR

 

 

First Discussion Board Assignment (post your writing on blackboard under discussion folder):

(due by 4/3 at 11:59 pm)

 Market Watch Game

Let's start trading in the stock market! Please join a game and report back on your experience.

Directions

1.      URL for your game: 
https://www.marketwatch.com/game/fin509-22spring

2.      Password for this private game: havefun.

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

4.      Register for a new account with your email address or sign in if you already have an account.


Discussion Board Prompts

1.      Why did you choose the stock? How much money did you think you would make? Please explain.

2.      Did you make money or lose money off of your chosen stock? Which factors contributed to that? 

3.      What did you learn from this experience and how will it affect your choices in real life when choosing stocks?

Instructions

        Responses should be 100 to 250 words in length and should answer all three prompts

        Optional: reply to one of your peers with meaningful, thought-provoking responses

        Due by 4/3/2022 at 11:59 p.m. ET

 

 

 

HOMEWORK of Chapters 5 and 6 (due on week 4, 7/10/2022) 

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)

3. 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)

 

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)

5. 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%)

6. 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%)

7. You have just won the lottery! You can receive $10,000 a year for 8 years or $57,000 as a lump sum payment today. What is the interest rate on the annuity? (8.22%)

8. 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)


9.  Expansion, Inc. acquired an additional business unit for $310,000. The seller agreed to accept annual payments of $67,000 at an interest rate of 6.5 percent. How many years will it take Expansion, Inc. to pay for this purchase? (5.68 years)

10. You want to retire early so you know you must start saving money. Thus, you have decided to save $4,500 a year, starting at age 25. You plan to retire as soon as you can accumulate $500,000. If you can earn an average of 11 percent on your savings, how old will you be when you retire? (49.74 years)

11. 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)

12. Fred was persuaded to open a credit card account and now owes $5,150 on this card. Fred is not charging any additional purchases because he wants to get this debt paid in full. The card has an APR of 15.1 percent. How much longer will it take Fred to pay off this balance if he makes monthly payments of $70 rather than $85? (93.04 months)

13. Bridget plans to save $150 a month, starting today, for ten years. Jordan plans to save $175 a month for ten years, starting one month from today. Both Bridget and Jordan expect to earn an average return of 8 percent on their savings. At the end of the ten years, Jordan will have approximately _____ more than Bridget. ($4,391)

(Hint: Bridgets is an annuity due, so abs(fv(8%/12, 10*12, 150, 0, 1)) --- type =1; Jordans 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.)

 

 

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 semi-annual 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 semi-annually? (10.78%) 

20. What is the effective annual rate of 9 percent compounded quarterly? (9.31%)

21. Fancy Interiors offers credit to customers at a rate of 1.65 percent per month. What is the effective annual rate of this credit offer? (21.70%)

 

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)

24. Three years ago, you took out a loan for $9,000. Over those three years, you paid equal monthly payments totaling $11,826. What was the APR on your loan? (18.69%)

 

 

FYI only: help for homework

Part 1(Qs 1-2) Part 2(Qs 4-8) Part 3(Qs 9-12)

Part 4(Qs 13-16) Part 5(Qs 17-20) Part 6(Qs 21-24)

(Q13: Bridgets is an annuity due, so abs(fv(8%/12, 10*12, 150, 0, 1)) --- type =1; Jordans 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

Part I Part II Part III

 

Calculators


NPV calculator
 

 

NFV calculator

 

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))

 

image001.jpg

 

 

EAR = (1+APR/m)^m-1

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

 

Ppt

 

 

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

 

 

 

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

 

Period Ending:

1/31/2022

1/31/2021

1/31/2020

1/31/2019

Current Assets

 

 

 

 

Cash and Cash Equivalents

$14,760,000

$17,741,000

$9,465,000

$7,722,000

Short-Term Investments

--

--

--

--

Net Receivables

$8,280,000

$6,516,000

$6,284,000

$6,283,000

Inventory

$56,511,000

$44,949,000

$44,435,000

$44,269,000

Other Current Assets

$1,519,000

$20,861,000

$1,622,000

$3,623,000

Total Current Assets

$81,070,000

$90,067,000

$61,806,000

$61,897,000

Long-Term Assets

 

 

 

 

Long-Term Investments

--

--

--

--

Fixed Assets

$112,624,000

$109,848,000

$127,049,000

$111,395,000

Goodwill

$29,014,000

$28,983,000

$31,073,000

$31,181,000

Intangible Assets

--

--

--

--

Other Assets

$22,152,000

$23,598,000

$16,567,000

$14,822,000

Deferred Asset Charges

--

--

--

--

Total Assets

$244,860,000

$252,496,000

$236,495,000

$219,295,000

Current Liabilities

 

 

 

 

Accounts Payable

$82,172,000

$87,349,000

$69,549,000

$69,647,000

Short-Term Debt / Current Portion of Long-Term Debt

$3,724,000

$3,830,000

$6,448,000

$7,830,000

Other Current Liabilities

$1,483,000

$1,466,000

$1,793,000

--

Total Current Liabilities

$87,379,000

$92,645,000

$77,790,000

$77,477,000

Long-Term Debt

$39,107,000

$45,041,000

$48,021,000

$50,203,000

Other Liabilities

$13,009,000

$12,909,000

$16,171,000

--

Deferred Liability Charges

$13,474,000

$14,370,000

$12,961,000

$11,981,000

Misc. Stocks

$8,638,000

$6,606,000

$6,883,000

$7,138,000

Minority Interest

--

--

--

--

Total Liabilities

$161,607,000

$171,571,000

$161,826,000

$146,799,000

Stock Holders Equity

 

 

 

 

Common Stocks

$276,000

$282,000

$284,000

$288,000

Capital Surplus

$86,904,000

$88,763,000

$83,943,000

$80,785,000

Retained Earnings

--

--

--

--

Treasury Stock

$4,839,000

$3,646,000

$3,247,000

$2,965,000

Other Equity

($8,766,000)

($11,766,000)

($12,805,000)

($11,542,000)

Total Equity

$83,253,000

$80,925,000

$74,669,000

$72,496,000

Total Liabilities & Equity

$244,860,000

$252,496,000

$236,495,000

$219,295,000

 

 

For discussion:

         What is this long term debt?

         Who is the lender of this long term debt?

So this long term debt is called bond in the financial market. Where can you find the pricing information and other specifications of the bond issued by WMT?

 

 

FINRA Bond market information

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

 

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

Or, just go to www.finra.org 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 http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104227&symbol=WMT.GP

 

 

 

 

 

 

 

The above graph shows the cash flows of a five year 5% coupon bond.

 

  

How Bonds Work (video)

Investing Basics: Bonds(video)

 

In class exercise:      

 

1.     Find bonds sponsored by WMT

       just go to www.finra.org Investor center  market data  bond  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 bonds yield change daily?

       Which of the WMT bonds are the most attractive one to you? Why?

 

http://finra-markets.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, semi-annual 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)) ------- 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 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 ----- semi-annual 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 semi-annual coupon bond is selling for $1,100, what is its return to investors?

 

5.      Current yield: For the above bond, calculate current yield. Note: current yield = coupon/bond price

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.

a.       Who are Moody, S&P and Fitch?

b.      What is WMTs rating?

c.       Is the rating for WMT the highest?

d.      Who earned the highest rating?

 

 

Supplement: Municipal Bond

image051.jpg

https://emma.msrb.org/

 

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://finra-markets.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/

http://www.youtube.com/watch?v=yph8TRldW6k

3.      Bond Online

http://www.bondsonline.com/Todays_Market/

 

 

 

Homework ( due on_7/10/2022)

 

1.  Firm AAAs 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 bonds coupon rate = 5%, 15 years left. Draw price-yield 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 bonds YTM?  3.09%

6.  IBM 10 year 4% semi-annual coupon bond is selling for $950. How much is this IBM bonds 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% semi-annual 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 (due by 7/7/2022)

Part I Q1-Q2 Q3-Q4 Q5-Q8 Q9-Q14

 

 

Quiz 2- Help Video (Quiz 2 Due by the end of week 3 Sunday on 7/3/2022)

 

 

 

Bond Calculator

www.jufinance.com/bond

 

 

 

Bond Pricing Formula (FYI)

 

image033.jpg

 

 

 

image035.jpg

 

 

image036.jpg

 

 

image037.jpg

 

image038.jpg

 

 

 

 

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 (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

 

 

Heres What You Need to Know About Americas Super-Hot Inflation (FYI)

Inflation is a tricky problem, but it has a few clear causes and consequences, and policymakers are working to bring it to heel.

 

https://www.nytimes.com/article/inflation-us-prices.html

 

By Jeanna Smialek, June 11, 2022

 

The government reported on Friday that consumer prices climbed 8.6 percent over the year through May, the fastest rate of increase in four decades.

 

Americans are confronting more expensive food, fuel and housing, and some are grasping for answers about what is causing the price burst, how long it might last and what can be done to resolve it.

 

There are few easy answers or painless solutions when it comes to inflation, which has jumped around the world as supply shortages collide with hot consumer demand. It is difficult to predict how long todays price surge will drag on, and the main tool for fighting it is interest rate increases, which cool inflation by slowing the economy potentially sharply.

 

Heres a guide to understanding whats happening with inflation and how to think about price gains when navigating this complicated moment in the U.S. and world economy.

 

Whats Driving Inflation

It can be helpful to think of the causes of todays inflation as falling into three related buckets.

 

Strong demand. Consumers are spending big. Early in the pandemic, households amassed savings as they were stuck at home, and government support that continued into 2021 helped them put away even more money. Now people are taking jobs and winning wage increases. All of those factors have padded household bank accounts, enabling families to spend on everything from backyard grills and beach vacations to cars and kitchen tables.

 

Too few goods. As families have taken pandemic savings and tried to buy pickup trucks and computer screens, they have run into a problem: There have been too few goods to go around. Factory shutdowns tied to the pandemic, global shipping backlogs and reduced production have snowballed into a parts-and-products shortage. Because demand has outstripped the supply of goods, companies have been able to charge more without losing customers.

 

Now, Chinas latest lockdowns are exacerbating supply chain snarls. At the same time, the war in Ukraine is cutting into the worlds supply of food and fuel, pushing overall inflation higher and feeding into the cost of other products and services. Gas prices are averaging around $5 a gallon nationally, up from just over $3 a year ago.

 

Service-sector pressures. More recently, people have been shifting their spending away from things and back toward experiences as they adjust to life with the coronavirus and inflation has been bubbling up in service industries. Rents are climbing swiftly as Americans compete for a limited supply of apartments, restaurant bills are heading higher as food and labor costs rise, and airline tickets and hotel rooms cost more because people are eager to travel and because fuel and labor are more expensive.

 

You might be wondering: What role does corporate greed play in all this? It is true that companies have been raking in unusually big profits as they raise prices by more than is needed to cover rising costs. But they are able to do that partly because demand is so strong consumers are spending right through price increases. It is unclear how long that pricing power will last. Some companies, like Target, have already signaled that they will begin to reduce prices on some products as they try to clear out inventory and keep customers coming.

 

Understand Inflation and How It Impacts You

Greedflation: Some experts say that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue.

Changing Behaviors: From driving fewer miles to downgrading vacations, Americans are making changes to their spending because of inflation. Heres how five households are coping.

 

How Is Inflation Measured?

Economists and policymakers are closely watching Americas two primary inflation gauges: The Consumer Price Index, which was released on Friday, and the Personal Consumption Expenditures index.

 

The C.P.I. captures how much consumers pay for things they buy, and it comes out earlier, making it the nations first clear glimpse at what inflation did the month before. Data from the index is also used to come up with the P.C.E. figures.

 

The P.C.E. index, which will be released next on June 30, tracks how much things actually cost. For instance, it counts the price of health care procedures even when the government and insurance help pay for them. It tends to be less volatile, and it is the index the Federal Reserve looks to when it tries to achieve 2 percent inflation on average over time. As of April, the P.C.E. index was climbing 6.3 percent compared with the prior year more than three times the central bank target.

 

Policymakers are also particularly attuned to the so-called core inflation measure, which strips out food and fuel prices. While groceries and gas make up a big part of household budgets, they also jump around in price in response to changes in global supply. As a result, they dont give as clear a read on the underlying inflationary pressures in the economy the ones the Fed believes it can do something about.

 

Im going to be looking to see a consistent string of decelerating monthly prints on core inflation before Im going to feel more confident that were getting to the kind of inflation trajectory thats going to get us back to our 2 percent goal, Lael Brainard, the vice chair of the Fed and one of its key public messengers, said during a CNBC interview last week.

 

What Can Slow the Rapid Price Gains?

How long prices will continue to climb rapidly is anyones guess: Inflation has confounded experts repeatedly since the pandemic took hold in 2020. But based on the drivers behind todays hot prices, a few outcomes appear likely.

 

For one, quick inflation seems unlikely to go away entirely on its own. Wages are climbing much more rapidly than normal. That means unless companies suddenly get more efficient, they will probably try to continue to increase prices to cover their labor costs.

 

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

 

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

 

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.

 

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

 

As a result, the Fed is raising interest rates to slow demand and tamp down wage and price growth. The central banks policy response means that the economy is almost surely headed for a slowdown. Already, higher borrowing costs have begun to cool off the housing market.

 

The question and big uncertainty is just how much Fed action will be needed to bring inflation under control. If America gets lucky and supply chain shortages ease, the Fed might be able to let the economy down gently, slowing the job market enough to temper wage growth without causing a recession.

 

In that optimistic scenario, often called a soft landing, companies will be forced to lower their prices and pare their big profits as supply and demand come into balance and they compete for customers again.

 

But it is also possible that supply issues will persist, leaving the Fed with a more difficult task: raising rates more drastically to slow demand enough to bring price increases under control.

 

The path toward a soft landing is a very narrow one narrow to the point where we expect a recession as the baseline, said Matthew Luzzetti, chief U.S. economist at Deutsche Bank. Thats partly because consumer spending shows little sign of cracking so far.

 

Households still have about $2.3 trillion of excess savings to help them weather higher rates and prices, Mr. Luzzettis team has estimated.

 

There continues to be deep pockets of pent-up demand, Anthony G. Capuano, chief executive of the hotel company Marriott International, said during a June 7 event. Unlike previous economic cycles and economic downturns, here you have this added dimension, which was folks were locked down for 12 to 24 months.

 

 

Bringing inflation down is going to take time, patience - and pain (FYI)

PUBLISHED THU, JUN 9 20222:47 PM EDTUPDATED THU, JUN 9 20224:04 PM EDT

Jeff Cox

https://www.cnbc.com/2022/06/09/bringing-inflation-down-is-going-to-take-time-patience-and-pain.html

 

KEY POINTS

       To stop 40-year highs in price increases, the economy will have to slow, supply chains will need to get fixed and demand will have to come back in line with pre-pandemic norms.

       Fridays highly anticipated CPI inflation report for May is likely to show only modest relief, if any.

       A recent paper by former Treasury secretary and Obama administration advisor Larry Summers suggests harsh interest rate hikes may be needed.

       President Joe Biden himself noted that much of the heavy lifting has to be done by the Fed.

Tackling runaway inflation wont be easy and it wont be quick, and it may carry a steep price tag that is just beginning to be paid.

 

To stop 40-year highs in price increases, the economy will have to slow. The ability of producers to get their goods to the marketplace will have to get a lot better, and demand and supply will have to come back into balance. Most troublingly, until the Ukraine war settles, these factors will have a limited impact on fixing the economy.

 

Even under the best of conditions, a trend that has seen gasoline reach nominal new highs near $5 a gallon, the price of everyday foods like cereal, eggs and hamburger jump by double-digit percentages over the past year and housing costs rise ever higher, will ease only incrementally. That means little relief for consumers anytime soon.

 

Slow descent is how Wells Fargo senior economist Sarah House described the likely downward trajectory of inflation from here. If you think about inflation, a lot of it is momentum driven. Price setting is slow moving. Companies dont just change their prices on a dime.

 

Indeed, Fridays highly anticipated inflation report is likely to show only modest relief, if any.

 

Were probably, maybe, just past the peak of inflation, says Pantheon Macroeconomics Shepherdson

The consumer price index, a measure that encompasses the cost of a massive basket of goods and services, is expected to show inflation increasing at an 8.3% pace over the past year, same as in April, according to Dow Jones estimates. Excluding food and energy prices, so-called core CPI is expected to show growth of 5.9%, slightly off the 6.2% pace from the previous month.

 

Whats more, the monthly gains are expected to accelerate 0.7% for headline inflation versus a gain of just 0.3% in April. Core is expected to be little changed, up 0.5%, which would be a one-tenth point month-over-month decline.

 

Peering through the numbers

Economists, though, will look beyond the headline numbers and try to find trends in the CPI components.

 

Food and energy, for instance, comprise about 22% of the index, so any slowdown there will be considered noteworthy. Shelter costs, a vital component, make up 32%. More broadly, services comprise about 60% of CPI compared to 40% for goods. Most of the current inflation wave comes from the goods component.

 

Slowing the economy would help. Seeing weaker demand growth would take some of the pressure off, House said. Its not just about a slowdown, though. Compositions effects are important. Some areas are more important than others. Goods inflation is one area where we could begin to see spending slow. Thats where a lot of the pressure points are.

 

The Federal Reserve is hoping to help that process along by raising short-term interest rates, which had been anchored near zero as the economy recovered from pandemic-related restrictions.

 

Markets widely expect the Fed to keep raising its benchmark borrowing rate to around 2.75%-3% from the current range of 0.75%-1%.

 

However, the Fed may have even more work to do than that.

 

A lesson from the 80s

A National Bureau of Economic Research working paper released recently by former Treasury secretary and Obama administration advisor Larry Summers, along with a team of other economists, suggests that the Fed could need to raise rates by considerably more to bring inflation down to its 2% goal.

 

The paper compared the current run of inflation to the early 1980s, which was the last time price increases were of a similar concern. During that time, the Paul Volcker-led Fed took the funds rate up to 19%, causing a recession that eventually helped send inflation on a downward spiral that would last almost 40 years, until the current run-up in prices.

 

Many economists say that kind of tightening wont be necessary because inflation was running at 14.8% back then.

 

But the Summers paper said CPI was calculated differently then, primarily in the way it accounted for housing costs. Using the same methodology would bring core CPI to about 9.1% now.

 

To return to 2 percent core CPI inflation today will thus require nearly the same amount of disinflation as achieved under Chairman Volcker, the Summers team wrote.

 

Bidens plan

President Joe Biden recently released his plan to help bring down inflation.

 

In a Wall Street Journal op-ed, Biden said he would take measures to fix supply chain problems and bring down the budget deficit, which ran to nearly $2.8 trillion in fiscal 2021 but is on track to be a fraction of that this year at just $360 billion through seven months, due largely to Congress not approving additional Covid-19 relief money.

 

But those measures are likely to just nibble at the edges of inflation, and the president himself noted that much of the heavy lifting has to be done by the Fed.

 

They have the primary role on bringing inflation down, Treasury Secretary and former Fed Chair Janet Yellen said at a congressional hearing earlier this week. Its up to them in how they go about doing it.

 

But Fed hikes also take time to work through the system and, until then, economists will be looking at other factors.

 

Recent announcements from Target and other retailers saying they will work to bring down excess inventory also could be deflationary. But with apparel carrying just a 2.5% weighting in the CPI, those kinds of moves wont make a big dent in the potentially scary headline numbers.

 

If someone tells you recent news that some retailers are discounting clothes will have any measurably effect on CPI, ignore them, DataTrek Research co-founder Nicholas Colas wrote in his daily market note. Retailers could give clothes away for free and U.S. inflation would still be over 5 percent.

 

Ultimately then, taming inflation will require a slow bleed of the forces that have led up to the current situation. That means a mix of lower growth, reduced strain on the labor market and a recipe of other things that will have to go right before measurable relief is possible.

 

Its not going to be easy, said House, the Wells Fargo economist. Given that you have decent consumer spending and business spending, thats going to keep the pressure on inflation overall.

Week 4

Chapter 8 Stock Valuation

 

ppt

 

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

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

 

        EX-DIVIDEND DATE04/25/2022

        DIVIDEND YIELD3.53%

        ANNUAL DIVIDEND$0.4

        P/E RATIO3.89

Ex/EFF DATE

TYPE

CASH AMOUNT

DECLARATION DATE

RECORD DATE

PAYMENT DATE

04/25/2022

CASH

$0.10

04/07/2022

04/26/2022

06/01/2022

01/28/2022

CASH

$0.10

01/10/2022

01/31/2022

03/01/2022

11/18/2021

CASH

$0.10

10/27/2021

11/19/2021

12/01/2021

01/29/2020

CASH

$0.15

01/08/2020

01/30/2020

03/02/2020

10/21/2019

CASH

$0.15

10/10/2019

10/22/2019

12/02/2019

07/22/2019

CASH

$0.15

07/11/2019

07/23/2019

09/03/2019

04/23/2019

CASH

$0.15

04/08/2019

04/24/2019

06/03/2019

01/30/2019

CASH

$0.15

01/16/2019

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

07/12/2018

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

$0.28

01/16/2018

01/30/2018

03/01/2018

10/20/2017

CASH

$0.15

10/12/2017

10/23/2017

12/01/2017

07/20/2017

CASH

$0.15

07/14/2017

07/24/2017

09/01/2017

04/18/2017

CASH

$0.15

04/10/2017

04/20/2017

06/01/2017

01/18/2017

CASH

$0.20

01/11/2017

01/20/2017

03/01/2017

10/25/2016

CASH

$0.15

10/13/2016

10/27/2016

12/01/2016

07/26/2016

CASH

$0.15

07/14/2016

07/28/2016

09/01/2016

04/27/2016

CASH

$0.15

04/08/2016

04/29/2016

06/01/2016

01/27/2016

CASH

$0.55

01/14/2016

01/29/2016

03/01/2016

10/28/2015

CASH

$0.15

10/08/2015

10/30/2015

12/01/2015

07/29/2015

CASH

$0.15

07/09/2015

07/31/2015

09/01/2015

 

 

Wal-Mart Dividend History

    Refer to the following table for Wal-mart (WMTs dividend history)

 

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

 

 

WMT Dividend History

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

        EX-DIVIDEND DATE08/11/2022

        DIVIDEND YIELD1.83%

        ANNUAL DIVIDEND$2.24

        P/E RATIO26.91

Ex/EFF DATE

TYPE

CASH AMOUNT

DECLARATION DATE

RECORD DATE

PAYMENT DATE

08/11/2022

CASH

$0.56

02/17/2022

08/12/2022

09/06/2022

05/05/2022

CASH

$0.56

02/17/2022

05/06/2022

05/31/2022

03/17/2022

CASH

$0.56

02/17/2022

03/18/2022

04/04/2022

12/09/2021

CASH

$0.55

02/18/2021

12/10/2021

01/03/2022

08/12/2021

CASH

$0.55

02/18/2021

08/13/2021

09/07/2021

05/06/2021

CASH

$0.55

02/18/2021

05/07/2021

06/01/2021

03/18/2021

CASH

$0.55

02/18/2021

03/19/2021

04/05/2021

12/10/2020

CASH

$0.54

02/18/2020

12/11/2020

01/04/2021

08/13/2020

CASH

$0.54

08/14/2020

09/08/2020

05/07/2020

CASH

$0.54

05/08/2020

06/01/2020

03/19/2020

CASH

$0.54

03/20/2020

04/06/2020

12/05/2019

CASH

$0.53

02/19/2019

12/06/2019

01/02/2020

08/08/2019

CASH

$0.53

02/19/2019

08/09/2019

09/03/2019

05/09/2019

CASH

$0.53

02/19/2019

05/10/2019

06/03/2019

03/14/2019

CASH

$0.53

02/19/2019

03/15/2019

04/01/2019

12/06/2018

CASH

$0.52

02/20/2018

12/07/2018

01/02/2019

08/09/2018

CASH

$0.52

02/20/2018

08/10/2018

09/04/2018

05/10/2018

CASH

$0.52

02/20/2018

05/11/2018

06/04/2018

03/08/2018

CASH

$0.52

02/20/2018

03/09/2018

04/02/2018

12/07/2017

CASH

$0.51

04/03/2017

12/08/2017

01/02/2018

08/09/2017

CASH

$0.51

02/27/2017

08/11/2017

09/05/2017

05/10/2017

CASH

$0.51

02/21/2017

05/12/2017

06/05/2017

03/08/2017

CASH

$0.51

02/21/2017

03/10/2017

04/03/2017

12/07/2016

CASH

$0.50

02/29/2016

12/09/2016

01/03/2017

08/10/2016

CASH

$0.50

02/29/2016

08/12/2016

09/06/2016

05/11/2016

CASH

$0.50

02/18/2016

05/13/2016

06/06/2016

03/09/2016

CASH

$0.50

02/18/2016

03/11/2016

04/04/2016

12/02/2015

CASH

$0.49

03/02/2015

12/04/2015

01/04/2016

08/05/2015

CASH

$0.49

03/02/2015

08/07/2015

09/08/2015

05/06/2015

CASH

$0.49

02/25/2015

05/08/2015

06/01/2015