FIN 509 Class Web Page, Summer Semester' 25
The
Syllabus  https://ju.simplesyllabus.com/api2/doc-pdf/4to60enm6/25SUMR-FIN-509-102W-Essentials-of-Finance.pdf?locale=en-US
Grade Calculator    Overall
Grade Calculator  Risk Tolerance Test (FYI)
  
Weekly SCHEDULE, LINKS, FILES and Questions
| Week | Coverage, HW, Supplements -      
  Required | Equations and
  Assignments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ·     
  Weekly Thursday class url on
  blackboard collaborate: On Blackboard under “Join Course Room” Or from here   ·      
  Weekly
  Q&A Session on Blackboard URL (on Saturday from 7 – 8 PM):   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! ·      
  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   How to Win the MarketWatch Game!FYI onlyFirst, Go Big: Use Leveraged ETFs·       
  Trade SPXL
  (3x S&P Bull) when the market rises ·       
  Trade SPXS
  (3x S&P Bear) when the market tanks  Second, Short
  the Morning’s Biggest Loser | Pre-class assignment:  Set up marketwatch.com account and have
  fun | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 GameLet'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 7/24)     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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Week3 | Chapter 7 Bond
  Pricing Part I - Yield Curve     Quiz      Self-Produced
  Video 
 https://www.gurufocus.com/yield_curve.php 
 https://www.ustreasuryyieldcurve.com/ US Treasuries Yield Curve – July 9th, 2025 1.    
  Inverted Front End
  (Short-Term): ·      
  Yields rise from RRP (around 4.2%, overnight rate) to peak at
  approximately 4.45%
  around the 2-month to 4-month
  maturities. ·      
  This indicates tight short-term rates,
  likely influenced by the Federal
  Reserve’s policy stance (the Fed
  Funds Target Range is shown shaded). 2.     Downward Slope to Medium-Term (6M to 2Y): ·      
  After the short-term peak, yields start
  declining steadily, reaching the lowest point at 2 years (~3.75%). ·      
  This part of the curve is inverted, signaling market expectations of economic slowdown
  or future rate cuts. 3.     Upward Slope in Long-Term (5Y to 30Y): ·      
  From the 2-year low, yields gradually climb, reaching above 4.8% at the 20-year maturity, with a
  slight dip at 30 years. ·      
  This steepening in the long end
  may reflect inflation concerns,
  higher long-term risk premiums, or expectations of economic recovery. Summary:·       
  The curve is humped: short-term yields
  are higher than medium-term, but long-term yields rise again. ·       
  The inversion
  in the 6M to 2Y range suggests markets may be pricing in recession risks or Fed rate cuts. ·       
  The steep
  long end indicates persistent inflation expectations or fiscal pressures. ·       
  This is a non-standard yield curve,
  neither fully inverted nor upward sloping, but rather mixed (humped shape)—often seen in periods of economic transition or
  uncertainty. implications of the
  current yield curve (as of July 9, 2025) on the stock market 
 Key Takeaways1)    
  Defensives outperform in
  downturn fears. 2)    
  Value stocks benefit
  from higher long-term rates. 3)    
  Growth stocks are under
  pressure from high rates and inflation concerns. A Sample Model Portfolio based on the July
  9, 2025 Yield Curve Implications (FYI only) 
 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. 
 | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 Historyhttps://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 = Dividend
  Growth Rate 
 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 •        Test
  yourself first:                A
  stock price jumps to $40 from $20 but it suddenly dropped back to $20. Shall
  you buy the stock or not? •        The
  concept of anchoring draws on the tendency to attach or "anchor" our
  thoughts to a reference point - even though it may have no logical relevance
  to the decision at hand. •        Avoiding  Anchoring –       Be
  especially careful about which figures you use to evaluate a stock's
  potential. –       Don't
  base decisions on benchmarks –       Evaluate
  each company from a variety of perspectives to derive the truest picture of
  the investment landscape. Mental
  Accounting             Self-produced Video •        Test
  yourself –       Shall
  you payoff your credit card debt or start saving for a vocation? –       How
  do you spend your tax refund? •        Mental
  Accounting refers to the tendency for people to separate their money into
  separate accounts based on a variety of subjective criteria, like the source
  of the money and intent for each account.  Example:  People
  have a special "money jar" set aside for a vacation while still
  carrying credit card debt. Confirmation
  Bias       Self-produced video •        Confirmation
  bias: First impression can be hard to shake –       people
  selectively filter information that supports their opinion –       People
  ignore the rest opinions. –       In
  investing, people look for information that supports original idea •        Generate
  faulty decision making because of the bias Example: investor finds all
  sorts of green flags about the investment (such as growing cash flow or a low
  debt/equity ratio), while glossing over financially disastrous red flags,
  such as loss of critical customers or dwindling markets. Herding     Game      Self-produced video –       Example:
  Dotcom herd –       The
  tendency for individuals to mimic the actions of a larger group. •        Social
  pressure of conformity is one of the causes. –       This
  is because most people are very sociable and have a natural desire to be
  accepted by a group •        The
  second reason is the common rationale that a large group could not be
  wrong.           –       This
  is especially prevalent when an individual has very little experience. Overconfidence: •        Confidence
  implies realistically trusting in one's abilities •        Overconfidence
  implies an overly optimistic assessment of one's knowledge or control over a
  situation.  Disposition
  effect          Game            Self-produced Video –       which
  is the tendency for investors to hold on to losing stocks for too long and sell
  winning stocks too soon. »       The
  most logical course of action would be to hold on to winning stocks to
  further gains and to sell losing stocks to prevent escalating losses. »       investors
  are willing to assume a higher level of risk in order to avoid the negative
  utility of a prospective loss. »       Unfortunately,
  many of the losing stocks never recover, and the losses incurred continued to
  mount . Avoiding the Disposition Effect •        When you have a
  choice of thinking of one large gain or a number of smaller gains (such as
  finding $100 versus finding a $50 bill from two places), thinking of the
  latter can maximize the amount of positive utility. •        When you have a
  choice of thinking of one large loss or a number of smaller losses (losing
  $100 versus losing $50 twice), think of one large loss would create less
  negative utility. •        When you can
  think of one large gain with a smaller loss or a situation where you net the
  two to create a smaller gain ($100 and -$55, versus +$45), you would receive
  more positive utility from the smaller gain. •        When you can
  think of one large loss with a smaller gain or a smaller loss (-$100 and
  +$55, versus -$45), try to separate losses from gains. Gambler’s
  fallacy       Game     Self-produced Video –       An
  individual erroneously believes that the onset of a certain random event is
  less likely to happen following an event or a series of events. Example: •        Example: –       You
  liquidate a position after it has gone up in several days. –       You
  hold on to a stock that has fallen in several days because you view further
  declines as "improbable". •        Avoiding
  Gambler's Fallacy –       Investors
  should base decisions on fundamental or technical analysis before
  determining what will happen. It is irrational to buy a
  stock because you believe it is likely to reverse. 12 Cognitive Biases Explained - How to Think Better and More Logically
  Removing Bias (video, FYI)0:18 Anchoring Bias 1:22 Availability
  Bias 2:22 Bandwagon Effect
  3:09 Choice
  Supportive Bias 3:50 Confirmation
  Bias 4:30 Ostrich Bias 5:20 Outcome Bias 6:12 Overconfidence 6:52 Placebo Effect 7:44 Survivorship
  Bias 8:32 Selective
  Perception 9:08 Blindspot Bias Part VI: Practice (FYI) Play the stock market investment game. Make
  investment decision and balance risk with rewards in the stock market at  https://www.jufinance.com/game/investment/index.html
     HOMEWORK (Due with final) 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) 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     Homework help video
  (FYI) Quiz 3- Help Video     Quiz 3
  Practice 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 
 Details
  about how to derive the model mathematically (FYI) The Gordon growth model is a simple discounted cash flow
  (DCF) model which can be used to value a stock, mutual fund, or even the
  entire stock market.  The model is named after Myron Gordon who first
  published the model in 1959. The Gordon model assumes that a financial security
  pays a periodic dividend (D) which grows at a constant rate
  (g). These growing dividend payments are assumed to continue forever.
  The future dividend payments are discounted at the required rate of return
  (r) to find the price (P) for the stock or fund. Under these simple assumptions, the price of the
  security is given by this equation: 
 In this equation, I’ve used the “0” subscript
  on the price (P) and the “1” subscript on the dividend (D) to
  indicate that the price is calculated at time zero and the dividend is the
  expected dividend at the end of period one. However, the equation is
  commonly written with these subscripts omitted. Obviously, the assumptions built into this
  model are overly simplistic for many real-world valuation problems. Many
  companies pay no dividends, and, for those that do,
  we may expect changing payout ratios or growth rates as the
  business matures. Despite
  these limitations, I believe spending some time experimenting with the
  Gordon model can help develop intuition about the relationship between
  valuation and return. Deriving the Gordon Growth Model EquationThe Gordon growth model calculates the present value of
  the security by summing an infinite series of discounted dividend payments
  which follows the pattern shown here: 
 Multiplying both sides of the previous equation by
  (1+g)/(1+r) gives: 
 We can then subtract the second equation from the first
  equation to get: 
 Rearranging and simplifying: 
 
 Finally,
  we can simplify further to get the Gordon growth model equation   Companies
  that have consistently increased their dividends over the past 30 years 
 Companies
  with Near-Fixed Dividend Growth   
 Large-cap
  and well-known smaller companies that haven't paid dividends in the past
  decade: 
 Key Insight: Dividend Growth Model (DGM), Or Gordon’s Growth Model
 If the company doesn’t pay
  dividends, use other valuation methods:   
 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Chapter 9 Capital Budgeting Self-produced video explaining
  approaches for capital budgeting   
 1.      NPV Excel syntax Syntax   NPV(rate,value1,value2, ...)   Rate     is the rate of discount over
  the length of one period.   Value1, value2,
  ...     are 1 to
  29 arguments representing the payments and income. ·         Value1, value2, ... must be equally spaced in
  time and occur at the end of each    period. NPV uses the
  order of value1, value2, ... to interpret the order of cash flows.
  Be sure to enter your payment and income values in the correct sequence.   2.      IRR Excel syntax Syntax    IRR(values, guess)    Values  is an array or a reference to cells
  that contain numbers for which you want to calculate the internal rate of
  return.   Guess     is a number that you guess is
  close to the result of IRR.   
 
 
 Or, PI =
  NPV / CFo +1 Profitable
  index (PI) =1 + NPV / absolute value of CFo 3.     MIRR( values, finance_rate, reinvest_rate ) Where
  the function arguments are as follows: 
 
 Modified Rate of Return:
  Definition & Example (video)https://study.com/academy/lesson/modified-rate-of-return-definition-example.html  NPV, IRR, Payback Period calculator I NPV, IRR, Payback Period calculator II 
 
 Excel Template - NPV, IRR, MIRR, PI, Payback,
  Discounted payback NPV
  Profile in Excel Demonstration (Video, FYI)   In class exercise   Part I: Single project 1.    
  How much is MIRR? IRR? Payback period?
  Discounted payback period? NPV?  WACC:  11.00% Year                0          1          2          3           Cash
  flows      -$800   $350    $350    $350   Answer: 1)    
  NPV:    NPV = -800 + 350/(1+11%) +
  350/(1+11%)2 + 350/(1+11%)3  = 55.30 Or in excel:  = npv(11%, 350, 350, 350)-800 = 55.30 2)    
  IRR:  
 So NPV = 0 = -800 +
  350/(1+IRR) + 350/(1+IRR)2 + 350/(1+IRR)3 , use Solver,
  can get IRR = 14.93% Or in excel:  
 3)    
  PI: profitable index 
 SO, PI= (350/(1+11%) + 350/(1+11%)2 + 350/(1+11%)3
  ) / 800 = 1.069 Or PI = NPV/800 + 1 = 55.30/800 + 1 = 1.069 4)    
  Payback period:  
 A portion of the third year = (800-350-350)/350 = 100/350 =
  0.2857 So it takes 2 + 0.2857 = 2.2857 years to pay off the debt of
  $800.  5)    
  Discounted payback period:  
 Note: All the cash flows in the above equation should be the
  present values.  A portion of the third year = (800-318.18-289.26)/262.96 =
  0.72 So it takes 2 + 0.72 = 2.72 years to pay off the debt of $800.
   
   A portion of the third year = (800-315.32-289.26)/262.96 = 0.72 So it takes 2 + 0.72 = 2.72 years to pay off the debt of $800. Or use the calculator at https://www.jufinance.com/capital/ Part
  II: Multi-Projects 1.    
  Projects S and L, whose cash flows are
  shown below.  These projects are mutually
  exclusive, equally risky, and not repeatable. 
  The CEO believes the IRR is the best selection criterion, while the
  CFO advocates the NPV.  If the decision
  is made by choosing the project with the higher IRR rather than the one with
  the higher NPV, how much, if any, value will be forgone, i.e., what's the
  chosen NPV versus the maximum possible NPV? 
  Note that (1) “true value”
  is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV
  will have no effect on the value gained or lost. WACC:  7.50% Year    0                          1                2            3          4           CFS     -$1,100               $550          $600       $100    $100 CFL     -$2,700               $650           $725      $800    $1,400 Answer:   
   
 If the required rate of return is 10%. Which project
  shall you choose? 1)      How
  much is the cross over rate? (answer: 11.8%) 2)      How
  is your decision if the required rate of return is 13%? (answer: NPV of
  B>NPV of A) ·         Rule for mutually exclusive projects: (answer:
  Choose B) ·         What about the two projects are
  independent? (answer: Choose both) Solution: 
 Part III More on IRR – (non-conventional cash flow)  Suppose an investment will cost
  $90,000 initially and will generate the following cash flows: –    Year 1: 132,000 –    Year 2: 100,000 –    Year 3: -150,000 The required return is 15%.
  Should we accept or reject the project? 1)      How  does the
  NPV profile look like? (Answer: Inverted NPV profile) 2)      IRR1= 10.11% --
  answer 3)      IRR2= 42.66% --
  answer Solution: 
 
 Summary 
   HOMEWORK(Due with final) 
 Year   Cash
  flows 1                    $8,000 2                    4,000 3                    3,000 4                    5,000 5                    10,000   1)      How much is the payback
  period (approach one)?   ---- 4 years 2)      If the firm has a 10%
  required rate of return. How much is NPV (approach 2)?-- $2456.74 3)      If the firm has a 10%
  required rate of return. How much is IRR (approach 3)? ---- 14.55% 4)      If the firm has a 10%
  required rate of return. How much is PI (approach 4)? ---- 1.12 Question 2: Project with an initial cash
  outlay of $60,000 with following free cash flows for 5 years.       Year    FCF                Initial
  outlay    –60,000                 1          25,000                 2          24,000                 3          13,000       4          12,000       5          11,000  The firm has a 15% required
  rate of return. Calculate payback period, NPV,
  IRR and PI. Analyze your results.  Question 3: Mutually Exclusive Projects 1)      Consider the following
  cash flows for one-year Project A and B, with required rates of return of
  10%. You have limited capital and can invest in one but one project. Which
  one? §  Initial Outlay: A = -$200; B = -$1,500 §  Inflow:            A
  = $300; B = $1,900   2)      Example: Consider two projects,
  A and B, with initial outlay of $1,000, cost of capital of 10%, and following
  cash flows in years 1, 2, and 3: A:
  $100                       $200                $2,000 B:
  $650                       $650                $650  Which project should you choose if they are mutually
  exclusive? Independent? Crossover rate? (mutually exclusive: A’s NPV=758.83 >
  B’s NPV = 616.45, so choose A; Independent, choose
  all positive NPV, so choose both;  Crossover rate = 21.01%. The calculator does not work. Use IRR
  in Excel) Quiz 4- chapter 9 – (no
  video prepared; Could use the calculator)  Homework help videos (chapter 9) | Simple
  Rules’ for Running a BusinessFrom the 20-page cellphone contract to the five-pound employee
  handbook, even the simple things seem to be getting more complicated. Companies have been complicating things for themselves, too—analyzing hundreds of factors when making decisions, or
  consulting reams of data to resolve every budget dilemma. But those
  requirements might be wasting time and muddling priorities. So argues Donald Sull,
  a lecturer at the Sloan School of Management at the Massachusetts Institute
  of Technology who has also worked for McKinsey & Co. and Clayton, Dubilier & Rice LLC. In the book Simple
  Rules: How to Thrive in a Complex World, out this week from Houghton
  Mifflin Harcourt HMHC -1.36%,
  he and Kathleen Eisenhardt of Stanford University claim that
  straightforward guidelines lead to better results than complex formulas. Mr. Sull recently spoke with At Work about
  what companies can do to simplify, and why five basic rules can beat a
  50-item checklist. Edited excerpts: WSJ: Where, in the business
  context, might “simple rules” help more than a complicated
  approach? Donald Sull: Well, a common decision that people face in organizations is
  capital allocation. In many organizations, there will be thick procedure
  books or algorithms–one company I worked with had an
  algorithm that had almost 100 variables for every project. These are very
  cumbersome approaches to making decisions and can waste time. Basically, any
  decision about how to focus resources—either people
  or money or attention—can benefit from simple rules. WSJ: Can you give an example of
  how that simplification works in a company? Sull: There’s
  a German company called Weima GmBH that makes shredders. At one point,
  they were getting about 10,000 requests and could only fill about a thousand
  because of technical capabilities, so they had this massive problem of
  sorting out which of these proposals to pursue. They had a very detailed checklist with 40 or 50 items. People
  had to gather data and if there were gray areas the proposal would go to
  management. But because the data was hard to obtain and there were so many
  different pieces, people didn’t always fill out the checklists completely. Then
  management had to discuss a lot of these proposals personally because there
  was incomplete data. So top management is spending a disproportionate amount
  of time discussing this low-level stuff. Then Weima came up with guidelines that the
  frontline sales force and engineers could use to quickly decide whether a
  request fell in the “yes,” “no” or “maybe” category. They did it with five
  rules only, stuff like “Weima had to
  collect at least 70% of the price before the unit leaves the factory.” After that, only the “maybes” were sent to management. This
  dramatically decreased the amount of time management spend evaluating these
  projects–that time was decreased by almost a factor
  of 10. Or, take Frontier Dental Laboratories in Canada. They were
  working with a sales force of two covering the entire North American market.
  Limiting their sales guidelines to a few factors that made someone likely to
  be receptive to Frontier—stuff like “dentists
  who have their own practice” and “dentists
  with a website”—helped focus their efforts and
  increase sales 42% in a declining market. WSJ: Weima used five factors—is
  that the optimal number? And how do you choose which rules to follow? Sull: You should have four to six
  rules. Any more than that, you’ll spend too much time trying to follow
  everything perfectly. The entire reason simple rules help is because they
  force you to prioritize the goals that matter. They’re
  easy to remember, they don’t confuse or stress you,
  they save time. They should be tailored to your specific goals, so you choose
  the rules based on what exactly you’re trying to
  achieve. And you should of course talk to others. Get information from
  different sources, and ask them for the top things that worked for them. But
  focus on whether what will work for you and your circumstances. WSJ: Is there a business leader
  you can point to who has embraced the “simple rules” guideline? Donald Sull: Let’s look at when Alex Behring took
  over America
  Latina Logistica SARUMO3.BR +1.59%,
  the Brazilian railway and logistics company. With a budget of $15 million,
  how do you choose among $200 million of investment requests, all of which are
  valid? The textbook business-school answer to this is that you run the
  NPV (net present value) test on each project and rank-order them by NPV. Alex
  Behring knows this. He was at the top of the class at Harvard Business School. But instead Similarly, the global-health arm of the Gates Foundation gets
  many, many funding requests. But since they know that their goal is to have
  the most impact worldwide, they focus on projects in developing countries
  because that’s where the money will stretch farther. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|   Week 4 - Chapter 14 Cost of Capital       Self-Produced
  Video Explaining WACC and WACC Strategies for Different Industries 
 One option (if beta is given, refer to chapter 13)   
 Another option (if dividend is given): 
   
 WACC Formula 
   
 
 WACC calculator (annual
  coupon bond) (www.jufinance.com/wacc) 
     WACC calculator  (semi-annual coupon bond) (www.jufinance.com/wacc_1) 
 
 WACC Calculator help
  videos FYI 
 Weighted Average Cost of Capital (WACC) WACC
  is the discount rate used to evaluate project values. Formula:
  WACC = (Wd * Cost of Debt) + (We * Cost of Equity) Where: 
 Cost of Debt Formula: Definitions: 
 Cost of Equity Two
  methods are available depending on the information provided: 
 Definitions: 
 Definitions: 
 In Class Exercise 1: A company issues a 10-year annual coupon bond with a face value of $1,000 and a 5% coupon rate. The bond is sold in the market for $950, and the company incurs a flotation cost of $40 per bond. For the new stocks, the expected dividend is $2 with a growth rate of 10% and price of $40. The flotation cost is $4. The company raises capital in equal proportions i.e. 50% debt and 50% equity (such as total $1m raised and half million is from debt market and the other half million is from stock market). Tax rate 34%. What is WACC (weighted average cost of capital, cost of capital)? (Answer: 9.84%) 1) Why does the firm raise capital from the financial market? Is there of any costs of doing so? What do you think? 2) What is cost of debt? (Kd = rate(nper, coupon, -(price – flotation costs $)), 1000)*(1-tax rate)) 3) Cost of equity? (Ke = (D1/(Price – flotation costs $)) +g, or Ke = Rrf + Beta*MRP)) Why no tax adjustment like cost of debt? 4) WACC=Cost of capital = Percentage of Debt * cost of debt + percentage of stock * cost of stock = Wd*Kd + We* Ke Meaning: For a dollar raised in the capital market from debt holders and stockholders, the cost is WACC. Solution: Cost
  of debt = rate(10, 50,
  -(950-40), 1000)*(1-34%) Cost
  of/equity = 2/(40-4)+10% WACC
  = 0.5*cost of debt + 0.5*cost of equity 
 https://www.jufinance.com/wacc/ In Class Exercise 2: A company issues a 10-year seim-annual coupon bond with a face value of $1,000 and a 5% coupon rate. The bond is sold in the market for $950, and the company incurs a flotation cost of $40 per bond. For the new stocks, the expected dividend is $2 with a growth rate of 10% and price of $40. The flotation cost is $4. The company raises capital in equal proportions i.e. 50% debt and 50% equity (such as total $1m raised and half million is from debt market and the other half million is from stock market). Tax rate 34%. What is WACC (weighted average cost of capital, cost of capital)? (Answer: 9.84%) 1) Why does the firm raise capital from the financial market? Is there of any costs of doing so? What do you think? 2) What is cost of debt? (Kd = rate(nper, coupon, -(price – flotation costs $)), 1000)*(1-tax rate)) 3) Cost of equity? (Ke = (D1/(Price – flotation costs $)) +g, or Ke = Rrf + Beta*MRP)) Why no tax adjustment like cost of debt? 4) WACC=Cost of capital = Percentage of Debt * cost of debt + percentage of stock * cost of stock = Wd*Kd + We* Ke Meaning: For a dollar raised in the capital market from debt holders and stockholders, the cost is WACC. Solution: Cost
  of debt = rate(10*2,
  50/2, -(950-40), 1000)*2*(1-34%) Cost
  of/equity = 2/(40-4)+10% WACC
  = 0.5*cost of debt + 0.5*cost of equity 
 https://www.jufinance.com/wacc_1/ No
  homework for chapter 14   | (both annual and
  semi-annual) WACC calculator (annual coupon bond)      WACC calculator (semi-annual coupon
  bond) (www.jufinance.com/wacc_1)      Wal-Mart
  Inc  (NYSE:WMT) WACC %: 7.92% 
  As of 7/24/2025    As of today (2025-7-24), Walmart's
  weighted average cost of capital is 7.92%. Walmart's ROIC % is 12.12% (calculated using TTM income
  statement data). Walmart generates higher returns on investment than it costs
  the company to raise the capital needed for that investment. It is earning
  excess returns. A firm that expects to continue generating positive excess
  returns on new investments in the future will see its value increase as
  growth increases.https://www.gurufocus.com/term/wacc/WMT/WACC/Walmart%2BInc   
   Amazon.com
  Inc  (NAS:AMZN) WACC %:12% 
  As of 7/24/2025    As of today (2025-7-24) Amazon.com's weighted average cost of capital is 12%. Amazon.com's ROIC % is 14.31% (calculated using TTM income statement data). Amazon.com generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A firm that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. https://www.gurufocus.com/term/wacc/AMZN/WACC-Percentage/Amazon.com%20Inc       Apple
  Inc  (NAS:AAPL) WACC %:10.78%  
  As of 7/24/2025    As of today (2025-7-24), Apple's weighted
  average cost of capital is 10.78%. Apple's ROIC % is 33.27% (calculated
  using TTM income statement data). Apple generates higher returns on
  investment than it costs the company to raise the capital needed for that
  investment. It is earning excess returns. A firm that expects to continue
  generating positive excess returns on new investments in the future will see
  its value increase as growth increases..https://www.gurufocus.com/term/wacc/AAPL/WACC/Apple%2Binc Tesla WACC %: 14.83%   As of 7/24/2025    As of today (2025-7-24), Tesla's weighted average cost of capital is 14.83%. Tesla's ROIC % is 6.36% (calculated using TTM income statement data). Tesla earns returns that do not match up to its cost of capital. It will destroy value as it grows. https://www.gurufocus.com/term/wacc/NAS:TSLA/WACC-/Tesla 
 NVIDIA (NAS:NVDA) WACC %: 17.68%  As of 11/4/2024 As of today (2024-11/4), NVDIA's weighted average cost of capital is 17.68%. NVDIA's ROIC % is 170.81%. (calculated using TTM income statement data). Tesla earns returns that do not match up to its cost of capital. It will destroy value as it grows. https://www.gurufocus.com/term/wacc/NVDA/WACC-Percentage/NVDA 
 Cost of Capital by
  Sector (US)   Date of Analysis: Data used is
  as of January 2025 Download as an excel file instead: https://www.stern.nyu.edu/~adamodar/pc/datasets/wacc.xls For global datasets: https://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html 
 
 
 http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/wacc.htm | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Week
  6 - Chapter 13 Risk
  and Return     Equations (FYI): 1.    Expected return and
  standard deviation Given a probability distribution of
  returns, the expected return can be calculated using the following equation: 
 where 
 https://www.zenwealth.com/businessfinanceonline/RR/ExpectedReturn.html Given an asset's expected return,
  its variance can be calculated using the following equation: 
 where 
 The standard deviation is calculated
  as the positive square root of the variance. 
  https://www.zenwealth.com/businessfinanceonline/RR/MeasuresOfRisk.html Exercise:  Stock A has the following returns for various states of the
  economy:   
 Stock A's expected return is?
  Standard deviation? Solution: 
   ·       Expected return = 10%*(-30%)) + 20%*(-2%) + 40% *10% + 20%*18%
  + 10%*40% = 8.2% ·       Standard deviation  = sqrt(10%*(-30%-8.2%)2 +
  20%*(-2%-8.2%)2 +40%*(10%-8.2%)2 + 20%*(18%-8.2%)2
  +10%*(40%-8.2%)2) = 16.98%  Or,  https://www.jufinance.com/return/ 
 
 W1 and W2 are the percentage of each stock in the
  portfolio. 
   
 
 
 
 
 Exercise: Stocks A and B have the following returns for various states of
  the economy: 
 Solution: (or use calculator
  at https://www.jufinance.com/return/) Stock 1: ·       Expected return = 10%*(-30%)) + 20%*(-2%) + 40%
  *10% + 20%*18% + 10%*40% = 8.2% ·       Standard deviation  = sqrt(10%*(-30%-8.2%)2
  + 20%*(-2%-8.2%)2 +40%*(10%-8.2%)2 + 20%*(18%-8.2%)2
  +10%*(40%-8.2%)2) = 16.98%  Stock 2: ·       Expected return = 10%*(10%)) + 20%*(2%) + 40% *1%
  + 20%*2% + 10%*(-5)% = 1.7% ·       Standard deviation  = sqrt(10%*(10%-1.7%)2
  + 20%*(2%-1.7%)2 +40%*(1%-1.7%)2 + 20%*(2%-1.7%)2
  +10%*((-5)%-1.7%)2) = 3.41%  Covariance: ·       Covariance =
  10%*(-30%-8.2%)*(10%-1.7%)+20%*(-2%-8.2%)*(2%-1.7%)+40%*(10%-8.2%)*(1%-1.7%)+20%*(18%-8.2%)*(2%-1.7%)+10%*(40%-8.2%)*((-5%)-1.7%)
  = -0.54% Correlation: ·       Correlation = -0.54%/(16.98%* 3.41%) = -0.93 
 ]3..
  Historical returns Holding period return (HPR) =
  (Selling price – Purchasing price + dividend)/ Purchasing price 4.    CAPM (Capital Asset
  Pricing Model) model  ·        What is Beta? Where to find Beta? 
 Beta
  is a measurement of a stock's price fluctuations, which is often called
  volatility, and is used by investors to gauge how quickly a stock's price
  will rise or fall. Because beta is calculated from past returns, it's not
  considered as reliable a tool to forecast rises in stock prices, and it is
  more commonly used by options traders. Beta compares the changes in a
  company's stock returns against the returns of the market as a whole. Online
  brokerages give investors extensive data on a stock's beta value, and some
  free financial news websites also show current beta measurements. ·         What
  Is the Capital Asset Pricing Model?The Capital Asset Pricing Model (CAPM)
  describes the relationship between systematic risk and expected
  return for assets, particularly stocks. CAPM is widely used throughout
  finance for pricing risky securities and generating expected
  returns for assets given the risk of those assets and cost of capital.  Ri = Rf + βi  *( Rm -
  Rf) ------ CAPM model ·       Ri =
  Expected return of investment ·      
  Rf = Risk-free rate ·      
  βi = Beta of the investment ·      
  Rm = Expected return of market ·      
  (Rm - Rf)
  = Market risk premium Investors expect to be compensated for risk and the time
  value of money. The risk-free rate in the CAPM formula accounts for
  the time value of money. The other components of the CAPM formula account for
  the investor taking on additional risk.  The beta of a potential investment is a
  measure of how much risk the investment will add to a portfolio that looks
  like the market. If a stock is riskier than the market, it will have a beta
  greater than one. If a stock has a beta of less than one, the formula assumes
  it will reduce the risk of a portfolio. A stock’s beta is then multiplied by
  the market risk premium, which is the return expected from the market
  above the risk-free rate. The risk-free rate is then added to the product of
  the stock’s beta and the market risk premium.
  The result should give an investor the required
  return or discount rate they can use to find the value of an
  asset. The goal of the CAPM formula is to evaluate whether a stock is
  fairly valued when its risk and the time value of money are compared to its
  expected return. For example, imagine an investor is
  contemplating a stock worth $100 per share today that pays a 3% annual
  dividend. The stock has a beta compared to the market of 1.3, which means it
  is riskier than a market portfolio. Also, assume that the risk-free rate is
  3% and this investor expects the market to rise in value by 8% per year. The expected return of the stock based on the CAPM formula is
  9.5%. The expected return of the CAPM formula is used to discount
  the expected dividends and capital appreciation of the stock over the
  expected holding period. If the discounted value of those future cash flows
  is equal to $100 then the CAPM formula indicates the stock is fairly valued
  relative to risk. (https://www.investopedia.com/terms/c/capm.asp)   ·       SML – Security Market Line 
   In Class Exercise  ·      
  NVIDIA, WalMart,
  JP Morgan -  Monthly Stock prices
  – prior 5 years from https://script.google.com/macros/s/AKfycbxao_yHFToaMAs2fuEiYMfHapioFAjIukvBAFyJIOS6ccYL2WAepMMyrO8afpRjsVBA/exec   Here's how to pull monthly
  stock data in Google Sheets for free
  using the  Step 1: Use  | How
  much does Amazon worth?” --- FYI only: Amazon.com Inc. (AMZN) https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/DCF/Present-Value-of-FCFF    Present Value of Free Cash Flow to the Firm
  (FCFF)In discounted cash flow (DCF) valuation techniques the
  value of the stock is estimated based upon present value of some measure of
  cash flow. Free cash flow to the firm (FCFF) is generally described as cash
  flows after direct costs and before any payments to capital suppliers. 
   Intrinsic Stock
  Value (Valuation Summary)Amazon.com Inc., free cash flow to the
  firm (FCFF) forecast   
 1  Weighted Average
  Cost of Capital (WACC)Amazon.com Inc., cost of capital   
 1 USD $ in millions    Equity (fair value) = No. shares
  of common stock outstanding × Current share price    Debt (fair value). See Details » 2 Required rate of return on equity is estimated by
  using CAPM. See Details »    Required rate of return on
  debt. See Details »    Required rate of return on debt
  is after tax.    Estimated (average) effective
  income tax rate WACC = 16.17% FCFF Growth Rate
  (g)FCFF growth rate
  (g) implied by PRAT modelAmazon.com Inc., PRAT model   
 2017 Calculations 2 Interest expense, after tax = Interest expense ×
  (1 – EITR) 3 EBIT(1 – EITR) = Net income (loss) + Interest
  expense, after tax 4 RR = [EBIT(1 – EITR) – Interest expense (after
  tax) and dividends] ÷ EBIT(1 – EITR) 5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital 6 g = RR × ROIC FCFF growth rate
  (g) forecastAmazon.com Inc., H-model   
 where: Calculations g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1) g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1) g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Week7  part I | Final Exam (will be posted on blackboard) Final prep video (on youtube) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Week 7 Part II | 
 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FYI – Develop a Stock Data Fetcher in Google
  Sheets   Step 1: Create a New Google Sheet
 Step 2: Set Up the Google Apps Script
 // Function to serve the HTML file function doGet() {   return HtmlService.createHtmlOutputFromFile('index'); } function fetchStockData(ticker, startDateStr) {   var sheet = SpreadsheetApp.getActiveSpreadsheet().getActiveSheet();      // Clear previous data   sheet.getRange("A1:F1000").clearContent();   // Set the header row
  for daily data   sheet.getRange("A1").setValue("Date");   sheet.getRange("B1").setValue("Closing Price");   sheet.getRange("C1").setValue("Stock Name");   // Fetch and display
  the stock name using GOOGLEFINANCE   var stockNameFormula = `=GOOGLEFINANCE("${ticker}", "name")`;   sheet.getRange("C2").setFormula(stockNameFormula);   // Set up the formula
  to fetch daily data using GOOGLEFINANCE   var formula = `=GOOGLEFINANCE("${ticker}", "close", "${startDateStr}", TODAY(), "daily")`;   sheet.getRange("A2").setFormula(formula);   // Wait for the data to
  populate   SpreadsheetApp.flush();   // Copy the daily data
  into an array   var dataRange = sheet.getRange("A2:B1000").getValues();   var validData = dataRange.filter(row => row[0] && row[1]); // Remove empty rows
  and invalid data   if (validData.length === 0) {     return "No data available. Please check the stock ticker and date
  range.";   }   // Set the header row
  for monthly data in columns D, E, and F   sheet.getRange("D1").setValue("Month");   sheet.getRange("E1").setValue("Closing Price");   sheet.getRange("F1").setValue("Monthly Return");   // Process data to
  calculate the last trading day of each month   var monthlyData = {};   validData.forEach(row => {     var date = new Date(row[0]);     var price = row[1];     var monthKey = `${date.getFullYear()}-${(date.getMonth() + 1).toString().padStart(2, '0')}`;     // Keep updating to get
  the last price of the month     monthlyData[monthKey] = price;   });   // Write the monthly
  data and calculate returns   var previousPrice = null;   var rowIndex = 2;   for (var month in monthlyData) {     var price = monthlyData[month];     sheet.getRange(rowIndex, 4).setValue(month); // Write month in
  column D     sheet.getRange(rowIndex, 5).setValue(price); // Write price in
  column E     if (previousPrice !== null) {       var monthlyReturn = ((price - previousPrice) / previousPrice) * 100;       sheet.getRange(rowIndex, 6).setValue(monthlyReturn.toFixed(2) + "%"); // Write return in
  column F     }     previousPrice = price;     rowIndex++;   }   return "Data fetched and returns calculated successfully!"; } 
 Step 3: Authorize and Run the Script
 Step 4: Create the HTML File1.     In
  the Apps Script editor, click on the  2.     Name
  the new file  3.     Paste
  the following HTML code into the  <!DOCTYPE html> <html> <head>   <base target="_top">   <title>Stock Data Fetcher</title>   <style>     body {       font-family: Arial, sans-serif;       margin: 20px;     }     h2 {       color: #333;     }     label {       display: block;       margin-top: 10px;     }     input, button {       margin-top: 5px;     }     .footer {       margin-top: 20px;       font-size: 12px;       color: #666;       text-align: center;     }   </style> </head> <body>   <h2>Stock Data Fetcher</h2>   <label for="ticker">Stock Ticker:</label>   <input type="text" id="ticker" placeholder="e.g., AAPL, WMT" /><br>   <label for="startDate">Start Date:</label>   <input type="date" id="startDate" /><br>   <button onclick="fetchData()">Fetch Data</button>   <p id="status"></p>   <!-- Button to open
  the Google Sheet -->   <button onclick="openGoogleSheet()">Open Google Sheet</button>   <script>     function fetchData() {       var ticker = document.getElementById('ticker').value;       var startDate = document.getElementById('startDate').value;       // Call
  the Apps Script function       google.script.run.withSuccessHandler(function(response) {         document.getElementById('status').innerText = response;       }).fetchStockData(ticker, startDate);     }     function openGoogleSheet() {       //
  Replace with the URL of your Google Sheet      var
  sheetUrl = "YOUR_GOOGLE_SHEET_URL"; // Replace with your actual Google Sheet URL       window.open(sheetUrl, "_blank");     }   </script> </body> </html> Step 5: Deploy Your Web App
 Step 6: Access and Use the Web App
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| Chapters 2, 3 - Financial Statements (not required)   
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| Cash Flow Statement Answer | calculation for changes | ||
| Cash at the beginning of the
    year | 2060 | ||
| Cash
    from operation | |||
| net income | 3843 | ||
| plus depreciation | 1760 | ||
|   -/+ AR  | -807 | 807 | |
|   -/+ Inventory | -3132 | 3132 | |
|  +/- AP | 1134 | 1134 | |
| net
    change in cash from operation | 2798 | ||
| Cash
    from investment | |||
|  -/+ (NFA+depreciation) | -1680 | 1680 | |
| net
    change in cash from investment | -1680 | ||
| Cash
    from finaning | |||
|  +/- long term debt | 1700 | 1700 | |
|  +/- common stock | 2500 | 2500 | |
|  - dividend | -6375 | 6375 | |
| net
    change in cash from financing | -2175 | ||
| Total
    net change of cash | -1057 | ||
| Cash
    at the end of the year | 1003 | ||
 
 
************ What is Free Cash Flow **************
What is free cash flow (video)
What is free cash flow (FCF)? Why is
  it important?
•       
  FCF is the amount of cash available from operations for
  distribution to all investors (including stockholders and debtholders) after
  making the necessary investments to support operations.
•       
  A company’s value depends on the amount of FCF it can generate.
What are the five uses of FCF?
1. Pay interest on debt.
2. Pay back principal on debt.
3. Pay dividends.
4. Buy back stock.
5. Buy nonoperating assets (e.g., marketable securities,
  investments in other companies, etc.)

What are operating
  current assets?
•       
  Operating current assets are the CA
  needed to support operations.
•       
  Op CA include: cash, inventory,
  receivables.
•       
  Op CA exclude: short-term investments,
  because these are not a part of operations.
What are operating
  current liabilities?
•       
  Operating current liabilities are the
  CL resulting as a normal part of operations.
•       
  Op CL include: accounts payable and
  accruals.
•       
  Op CL exclude: notes payable, because
  this is a source of financing, not a part of operations.

Capital
  expenditure = increases in NFA + depreciation
Or,
  capital expenditure = increases in GFA
 
Note: All companies, foreign and domestic, are required to file
  registration statements, periodic reports, and other forms electronically
  through EDGAR.  https://www.sec.gov/edgar/searchedgar/companysearch.html
 
In class exercise
1. Firm
  AAA has EBIT (operating income) of $3 million, depreciation of $1 million.
  Firm AAA’s expenditures on fixed assets = $1 million.
  Its net operating working capital = $0.6 million.  Calculate for free cash flow. Imagine that
  the tax rate =40%. 
a.            $1.2
b.            $1.3
c.            $1.4
d.         $1.5
FCF =
  EBIT * (1 – Tax rate) + Deprec. –
  (Capex + NOWC)
Answer:
| Item | Amount
     ($) | 
| EBIT | 3.00 | 
| Tax rate | 40% | 
| Depreciation | 1.00 | 
| Capex + ΔNOWC | 1.60 | 
| Free Cash Flow (FCF) | = 3*(1-40%) + 1 – 1.6 = 1.20 | 
2. The
  following information should be used for the following problems:
| Item | 2014 | 2015 | 
| Sales | $740 | $785 | 
| COGS | $430 | $460 | 
| Interest | $33 | $35 | 
| Dividends | $16 | $17 | 
| Depreciation | $250 | $210 | 
| Cash | $70 | $75 | 
| Accounts
    receivables | $563 | $502 | 
| Current
    liabilities | $390 | $405 | 
| Inventory | $662 | $640 | 
| Long-term
    debt | $340 | $410 | 
| Net
    fixed assets | $1,680 | $1,413 | 
| Common
    stock | $700 | $235 | 
| Tax
    rate | 35% | 35% | 
What is
  the net income in 2015? ($52)
Answer:
Net Income = (sales – COGs – Depreciation –
  Interest)* (1-Tax Rate) 
= (785 – 460 – 210 – 35)*(1-35%) = $52
  Ratio Analysis  template
http://www.jufinance.com/ratio
 
 
Finviz.com/screener for ratio analysis (https://finviz.com/screener.ashx)
 
Financial ratio
  analysis  (VIDEO)