FIN 509 Class Web Page, Fall 2 semester' 24
The
Syllabus Grade
Calculator Overall
Grade Calculator Risk Tolerance Test (FYI)
Weekly SCHEDULE, LINKS, FILES and Questions
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Week |
Coverage, HW, Supplements -
Required |
Equations and
Assignments |
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Weekly Thursday class url on
blackboard collaborate: On Blackboard under “Join Course Room” Or from here https://us.bbcollab.com/guest/a070558d332041888dd5772fefccc290 ·
Weekly
Q&A Session on Blackboard URL (on Saturday from 7 – 8 PM): https://us.bbcollab.com/guest/7ee6be25e06546949517ebf89ef980b5 Class Schedule:
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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! ·
How To Win The MarketWatch
Stock Market Game (youtube) based on https://www.finviz.com
·
A shorting strategy based on finviz.com (FYI) https://www.jufinance.com/game/short_selling.html |
Pre-class assignment: Set up marketwatch.com account and have
fun |
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Week1,2 |
Chapter 5 Time value of money – Part
1 Chapter 5 In Class Exercise (Solution Word File)
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
Present value – Future value – Demonstration
Game In class exercise (conceptual) Chapter 6 Time Value of Money – Part
2 Chapter 6 In Class Exercise (Chapter 6 In Class Exercise
Solution Word File) 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):
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,
thought-provoking responses ·
Due by 7/11/2024 at 11:59
p.m. ET HOMEWORK of Chapters 5
and 6 (due by 11/3 ) 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 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%) 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
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: 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.) Quiz 1- Help Videos - Practice
Quiz |
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)^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) To get NPV, use NPV function NPV = npv(rate, cf1, cf2,…) + cf0 |
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Week3 |
Chapter 7 Bond
Pricing Part I - Yield Curve Quiz Self-Produced
Video
https://www.ustreasuryyieldcurve.com/ US Treasuries Yield Curve - October 22, 2024 ·
Inverted Yield Curve: The curve starts high at
the short end, with a peak around 1-month maturity, and then declines,
hitting a low point at around 3 years. This is indicative of an inverted
yield curve, which often signals an impending
economic recession. ·
Steepening Beyond 10 Years: After the 10-year mark,
the curve starts to rise again, indicating investors expect higher returns
for longer maturities, possibly due to anticipated future inflation or uncertainty.
Or at https://www.gurufocus.com/yield_curve.php Current Treasury Yield Curve vs. prior years’
Summary: · Inflation:
·
Stock Market:
·
Economic Growth:
Part II – Bond Definition How
Bonds Work (video) For
discussion: https://jufinance.com/risk_tolerance.html
· Among the aforementioned bonds, do you
have a preference? If so, what factors influence your choice? Outlook for Investing in Bonds in
2024 After starting the year recommending that investors focus on
the middle of the yield curve, we began to advise investors to lengthen their
duration in our midyear bond
market update. According to our forecasts, we continue to
think investors will be best served in longer-duration bonds
and locking in the currently high interest rates. https://www.morningstar.com/markets/where-invest-bonds-2024 Where can you find bond information? · All types of bonds: https://www.finra.org/finra-data/fixed-income · Treasury Bond Auction and Market information http://www.treasurydirect.gov/ Are bonds Risky? Self-produced video Quiz Bond risk – credit risk (video)
The above graph shows the cash flow of a five year 5% coupon bond.
The bond has a duration of 4.49 years.
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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 (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 |
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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? Refer to the following table for WMT’s dividend history Wal-Mart Dividend History https://www.macrotrends.net/stocks/charts/WMT/walmart/dividend-yield-history
WMT Dividend History
https://www.nasdaq.com/market-activity/stocks/wmt/dividend-history Walmart Inc. Common Stock (WMT) Dividend
History
·
Ex-Dividend Date08/16/2024 ·
Dividend Yield1.01% ·
Annual Dividend$0.83 ·
P/E Ratio13.72
An Analysis based on Walmart's (WMT) Dividend Payout
Record from 2020 to 2024: ·
Annual Payouts and Trends:
· Recent Dividend
Leveling:
· Prospects and Stability:
https://www.nasdaq.com/market-activity/stocks/wmt/dividend-history
P₀ = Σ [Dₜ / (1 + r)ᵗ]
from t=1 to ∞ where:
Calculating
the present value of dividends, especially when assuming they extend to
infinity, can be challenging. To simplify, we can assume that dividends grow at a constant 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. For dividends that grow at a constant
rate, the Net Present Value (NPV) of dividends can be calculated as: P₀ = D₁ / (r -
g) where:
https://www.nasdaq.com/market-activity/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
Growth-Dividend growth model Calculate
stock prices 1) Given next dividends and price Po= Po= Po= Po= …… where:
Refer to http://www.calculatinginvestor.com/2011/05/18/gordon-growth-model/ · Now let’s apply this Dividend
growth model in problem solving. Constant dividend
growth model calculator (www.jufinance.com/stock) Equations 1. Present
Value (P₀)
Formulas:
P₀ = D₁
/ (r - g) or P₀ = D₀
* (1 + g) / (r - g)
2. Required Rate of Return (r):
r = D₁ / P₀
+ g = D₀ * (1 + g) / P₀
+ g
3. Growth Rate (g):
g = r - D₁ / P₀
= r - D₀ * (1 + g) / P₀
4. Dividend Formulas (D₁ and D₀):
D₁ = P₀
* (r - g) and D₀ = P₀
* (r - g) / (1 + g) 5. Capital Gain Yield:
Capital Gain Yield = g = (P₁ - P₀) / P₀
P₁ = D₂
/ (r - g) 6. Dividend Yield:
Dividend Yield = r - g = D₁ / P₀ = D₀ * (1 + g) / P₀ 7. Future Dividends (D₁, D₂, D₃, …):
D₁ = D₀
* (1 + g), D₂ = D₁
* (1 + g), D₃ = D₂
* (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: Non-Constant Dividend
Growth Calculate
stock prices 1) Given next dividends and price Po= Po= Po= Po= …… Non-constant
dividend growth model Equations 1.
Market Price in Year (Pₙ):
When dividends start to grow at a constant rate from year : Pₙ = Dₙ₊₁ / (r - g) = Dₙ * (1 + g) / (r - g) where:
2.
Present Value in Year 0 (P₀):
The present value P0 of all future dividends
up to year is: P₀ = NPV(r, D₁, D₂, …, Dₙ + Pₙ) Or, equivalently: P₀ = D₁ / (1 + r) + D₂ / (1 +
r)² + … + (Dₙ
+ Pₙ) / (1 + r)ⁿ Calculator: Non-Constant Dividend Growth Calculator https://www.jufinance.com/dcf/ In class exercise for
non-constant 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:
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/(r-g), 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 non-constant 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)? 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/(r-g) = 2.8561*(1+6.34%) /(12% - 6.34%) Po = NPV(12%, 1.3, 1.69, 2.197,
2.8561+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) ·
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% ·
Mutual
Fund Selection Game https://www.jufinance.com/game/mutual_fund_selection.html ·
FYI ~ Step-by-Step Guide for
Screening Mutual Funds:
1. Open the Mutual Fund
Screener:
2. Choose Basic Search
Criteria:
Key
Criteria to Focus On:
3. Set Up a Simple Screen:
Step-by-Step Filters for the screener:
4. Run the Search:
5. Analyze the Results:
After you run the screen, a
list of funds will appear. Here's how to interpret the most important columns:
6. Key Points:
Example:
Let’s say you want to find a low-cost,
well-rated balanced fund:
Now, click Search,
and the results will show a list of funds that match this criteria. 7. Choosing a Fund:
After the search, click on a
fund’s name for more detailed information. You’ll see details like:
Additional Tips:
· Start
Simple: Focus on categories and ratings to avoid getting
overwhelmed by too many options. · Expense
Ratio: Always look at the fees! They can significantly impact
long-term returns. · Performance:
A fund’s historical performance isn’t
a guarantee of future returns, but it’s a useful
indicator. Part V: Behavior Finance (FYI) Understanding
behavioral finance is essential because it explains how psychological biases
and emotions influence investors' decisions, often leading to irrational market
behavior. By recognizing these tendencies, investors and analysts can make
more informed choices, avoid common pitfalls, and better anticipate market
trends driven by human behavior. Anchoring Game Self-produced Video |
