FIN 301, 509, & FIN510 Class Web Page, Summer'23
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/976baa0d6b064640a15dc718ab5da585 （updated, 6/22/2023） 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! FYI How To Win The MarketWatch
Stock Market Game (youtube) based on https://www.finviz.com

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

Week1,2 
Chapter 5 Time value of money 1 Week 1 in class exercise (word file) Solution 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 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 First Discussion Board Assignment (post your writing on blackboard under
discussion folder):
(due by 7/9 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: 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.
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,
thoughtprovoking responses ·
Due by 7/9/2023 at 11:59
p.m. ET HOMEWORK of Chapters 5
and 6 (due on week 4, 7/9) 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,
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 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) To get NPV, use NPV function NPV = npv(rate, cf1, cf2,…) + cf0 

Week3 
Chapter 7 Bond
Pricing Yield Curve http://finramarkets.morningstar.com/BondCenter/Default.jsp Or at https://www.gurufocus.com/yield_curve.php 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? FINRA – Bond market information http://finramarkets.morningstar.com/BondCenter/Default.jsp 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
https://www.finra.org/finradata/fixedincome/corpandagency/trade 1.
Understand
what is coupon, coupon rate, yield, yield to maturity, market price, par
value, maturity, annual bond, semiannual bond, current yield. Refer
to the following bond at http://finramarkets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104227&symbol=WMT.GP https://www.finra.org/finradata/fixedincome/bond?symbol=WMT5571287&bondType=CORP
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, 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. Note: current yield = coupon/bond price 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/ http://www.youtube.com/watch?v=yph8TRldW6k 3. Bond Online http://www.bondsonline.com/Todays_Market/ Homework ( due on_7/9/2023) 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 (due by 7/9/2023) Part
I Q1Q2
Q3Q4 Q5Q8 Q9Q14 Quiz
2 Help Video
(Quiz 2 Due by the end
of week 3 Wednesday on 7/12/2023) 
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 Second Discussion Board Reading Assignments
(suggested) Treasury yields invert as investors weigh
risk of recession June 6, 2023 Third
Discussion Board Reading Assignments ChatGPT probably won’t help you beat the stock market—but it can
assist investors in other ways, says CFP Published Fri, Jun 23 20233:01 PM EDT
Cheyenne DeVon Around 50% of Gen Zers and a little over half
of millennials have used ChatGPT, OpenAI’s viral AI chatbot, for investing
advice, according to a recent survey of over 2,000 Americans by The Motley
Fool, a financial and investing advice company. That’s despite the fact that OpenAI prompts
ChatGPT users with a warning that it sometimes “writes plausiblesounding but
incorrect or nonsensical answers” and that the tool is not intended to give
advice. But letting AI build your portfolio probably
isn’t the best investment strategy anyway. “It is by no means going to provide you with
a way to beat the market,” Douglas Boneparth, a certified financial planner
and the president and founder of Bone Fide Wealth, tells CNBC Make It. Boneparth himself put ChatGPT’s financial
acumen to the test and says the results weren’t great. He asked the tool to
build him a hypothetical diversified portfolio with 80% equity and 20% fixed
income and gave it a few parameters, risk characteristics and guidance as to
what kind of exchangetraded funds (ETFs) he wanted to use. “I was presented with a table that added up
to more than 100%,” he says. After informing ChatGPT of this, it tried to
correct the error but didn’t necessarily pull the right information, he says.
However, Boneparth says he was impressed by how close ChatGPT came to
achieving what he asked. People who use AI tools like ChatGPT for
financial advice may misunderstand the current capabilities and limitations of
these tools. Since they’re able to process large amounts of data, some may
assume that AI chatbots are “all knowing” or can predict the future
performance of a company, Boneparth says. While this technology may make a few lucky
stock picks, it hasn’t been around long enough for us to see whether it can
replicate those results over the long term, he says. Additionally, the free
version of ChatGPT has limited knowledge of world events after 2021, which
means its responses aren’t based on realtime data. “There’s just fundamental components of the
technology that are not there to do the things that you hope it would do,”
Boneparth says. “There’s a difference between potential and reality. And the
reality is we’re certainly not in a place where we should be relying on a
ChatGPT bot or AI in general to be making investment decisions for
ourselves.” How ChatGPT can actually help investors While ChatGPT and other AI chatbots may not
be the best tools for building a portfolio, they can be useful to investors
in other ways. The technology can be a helpful tool when
looking up definitions of financial terms you may be unfamiliar with or for
gathering data when researching a company that you’re considering investing
in, Boneparth says. But don’t expect AI to fully replace human
financial advisors any time soon. While we’ll probably continue to see these
tools do very well when it comes to “analytical number crunching,” a human
financial advisor is better suited to help you with financial decisions that
involve feelings and behaviors, such as deciding to move across the country
or choosing where to retire, Boneparth says. “AI isn’t really capable of understanding the
specific preferences of an individual, and therefore you’re not necessarily
going to get tailored financial advice,” he says. “Anytime feelings and behaviors get involved,
the financial planner or financial professional is likely going to be able to
use their own ability to relate or commiserate and help process those
feelings a lot better than what AI can do at this point.” Big banks are talking up generative A.I. — but the risks mean they’re
not diving in headfirst PUBLISHED MON, JUN 12 20237:48 PM EDT Ryan
Browne MacKenzie Sigalos KEY POINTS ·
Many
terms and phrases were used by top banking and fintech executives to describe
generative AI at Money 20/20 in Amsterdam this week, from “mind boggling” to
an “explosion of innovation.” ·
Generative
AI, which generates content in response to user prompts, can be used to
automate complex processes in banking. ·
However,
the technology is still in its early days, and many banks cautioned that it
may be too risky to implement it in areas that touch consumers. AMSTERDAM, Netherlands — Major banks and fintech
companies claim to be piling into generative artificial intelligence as the
hype surrounding the buzzy technology shows no signs of fizzling out — but
there are lingering fears about potential pitfalls and risks. At the Money 20/20 fintech conference in
Amsterdam, Netherlands, executives at large lenders and online finance firms
sang the praises of generative AI, calling it an “explosion of innovation,”
and saying it will “unleash innovation in areas that we can’t even think
about.” Chalapathy Neti, head of AI at global bank
messaging network Swift, described the progress made with ChatGPT and GPT4
as “mindboggling.” He added, “This is truly a transformative moment.” But in the short term, banks are scrambling
to figure out the use cases. The Netherlands’ ABN Amro is one banking
giant that’s piloting the use of generative AI in its processes. Annerie Vreugdenhil, chief commercial officer
of ABN Amro’s personal and business banking division, revealed on a panel
that it is using the technology to automatically summarize conversations
between bank staff and customers. It’s also using it to help its employees
gather data on customers to assist with answering queries and avoid
repetitive questions. The bank is now in the process of scaling
these pilots to 200 employees and is exploring a number of new pilots to
start this summer. In a closeddoor session on the application
of AI in financial services, meanwhile, two banking executives explained how
they’re using the technology to improve their internal code and analyze how
their clients are behaving. “We are experimenting at this stage and we
don’t have necessarily anything client facing but we are using the [tech the]
same as other companies, for example, code refactoring, comms calls, the
other way around,” said Mariana Gomez de la Villa, an executive at ING Bank
specializing in strategy and innovation. Indeed, the banks appeared unanimous in their
hesitation to roll out ChatGPTlike tools to customerfacing scenarios. Jon Ander Beracoechea Alava, advanced
analytics discipline head at Spanish bank BBVA, said that the lender had
taken a “conservative approach” to AI, adding that, at this stage, generative
AI is “still early” and “immature.” A crucial issue is that advanced AI systems
require the processing of huge volumes of data — a sensitive commodity
wrapped up in all kinds of rules and regulations. As such, Alava said that at
this stage it was too “risky” to involve sensitive information from
customers. Generative A.I., explained Generative AI is a specific form of AI that
is able to produce content from scratch. The systems take inputs from the
user and feed them into powerful algorithms fueled by large datasets to
generate new text, images and video in a way that’s more humanlike than most
AI tools already on the market. The technology was thrust into the spotlight
following the success of OpenAI’s GPT language processing technology.
ChatGPT, which uses massive language models to create humansounding
responses to questions, has ignited an arms race among some companies over
what is seen as the next “paradigm shift” in tech. In March, Goldman Sachs’ chief information
officer, Marco Argenti, told CNBC the bank is experimenting with generative
AI tools internally to help its developers automatically generate and test
code. More recently, in May, Goldman spun off the
first startup from the bank’s internal incubator — an AIpowered social media
company for corporate use called Louisa. The push into AI is part of a larger
effort by CEO David Solomon to expedite the bank’s digital makeover. Morgan Stanley, meanwhile, is using it to
inform its financial advisors on queries they may have. The bank has been
testing an OpenAIpowered chatbot with 300 advisors so far, with a view to
ultimately aid its roughly 16,000 advisors in making use of Morgan Stanley’s
repository of research and data, according to Jeff McMillan, head of
analytics and data at the firm’s wealth management division. A.I. ‘copilot’ These are just some examples of how financial
firms are using AI, but more as a digital helper than as a core part of their
services. Gudmundur Kristjansson, CEO and cofounder of
Icelandic regulatory technology firm Lucinity, showed CNBC how artificial
intelligence can be used to assist with a key area in finance: fighting
crime. An AI tool the company created, called Luci,
aims to help compliance professionals with their investigations. In a live
demonstration, Kristjansson showed himself looking into a money laundering
case. The AI tool analyzed the case and described what it saw and then
completed an independent review. In this use case, the AI acts as more of a
resource — or “copilot” — to help an employee find data and flesh out a case rather
than replace the role of a person looking into reports of suspicious
activity. “Where you find money laundering is through
... interconnected networks of people who are basically employed to do it.
That’s why it’s so hard to find it. Banks spent this year $274 billion on
prevention,” Kristjansson told CNBC in an interview. He said where Luci helps is by vastly
reducing the amount of time spent trying to work out whether something is
fraud or money laundering. The whole appeal of AI to the big banks and
fintechs, Money 20/20 attendees said, is the potential reduction in the time
and money it takes to complete tasks that can take human employees days. Niklas Guske, chief operating officer at
Taktile, a startup that helps fintechs automate decisionmaking, acknowledged
that the use of AI is challenging in the financial sector, given the lack of
publicly available data. But he stressed that it could be a “crucial”
tool to reduce the companies’ operational expenses and improve efficiency. “In many fintech applications, this is done
through an increase in automation and reducing manual processes, especially
in onboarding and underwriting,” he told CNBC. “This automation is truly enabled through
access to more data sources, which empower lenders to gain new insights and
identify the right customers without having to parse through dozens of PDFs
for the right piece of information.” — CNBC’s Hugh Son contributed reporting 

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? F Dividend History
https://www.nasdaq.com/marketactivity/stocks/f/dividendhistory ·
EXDIVIDEND DATE 04/25/2023 ·
DIVIDEND YIELD 3.94% ·
ANNUAL DIVIDEND $0.60 ·
P/E RATIO 21.62
WalMart Dividend History https://www.macrotrends.net/stocks/charts/WMT/walmart/dividendyieldhistory WMT Dividend History
https://www.nasdaq.com/marketactivity/stocks/wmt/dividendhistory EXDIVIDEND
DATE 05/04/2023
·
DIVIDEND YIELD 1.44% ·
ANNUAL DIVIDEND $2.28 ·
P/E RATIO 38.01
For class discussion: What conclusions can be drawn from
the above information? Can we figure out the stock price
of WalMart based on dividend, with reasonable assumptions? Can you estimate the
expected dividend in 2024? And in 2025? And on and on… Can you write down the math equation
now? WMT stock price = ? WMT
stock price = npv(return, D_{1}, D_{2}, …D_{∞}) WMT
stock price = D_{1}/(1+r) + D_{2}/(1+r)^{2}
+ D_{3}/(1+r)^{3}
+ D_{4}/(1+r)^{4} + … Calculating the present value of
dividends when assuming dividends go to infinity can indeed be challenging.
To simplify the calculation, we can make the assumption that dividends grow
at a certain rate. Additionally, we can use the discount
rate 'r,' which is based on the Beta and Capital Asset Pricing Model (CAPM)
discussed in Chapter 13. By incorporating these assumptions, we can
streamline the calculation process for determining the present value of
dividends. https://www.nasdaq.com/marketactivity/stocks/wmt What information does each item in the table convey or
represent? 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 ·
D1 = Po *(rg); D0 =
Po*(rg)/(1+g) · 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 (D1)
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 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 } Calculator: NonConstant Dividend Growth Calculator In class exercise for
nonconstant dividend growth model 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:
