FIN301 Class Web Page, Spring ' 18
Instructor: Maggie Foley
Jacksonville University
Business
Finance Online, an interactive learning tool for the
Corporate Finance Student https://www.zenwealth.com/BusinessFinanceOnline/index.htm
Weekly SCHEDULE, LINKS, FILES and Questions
Chapter 
Coverage, HW, Supplements 
Required 
References

Videos (optional) 

Chapter
1, 2 
Discussion: How to pick stocks (finviz.com) Daily earning announcement: http://www.zacks.com/earnings/earningscalendar IPO schedule: http://www.marketwatch.com/tools/ipocalendar Chapter 1: Introduction ..0.0000 Flow
of funds describes the financial assets flowing from various sectors through
financial intermediaries for the purpose of buying physical or financial
assets. *** Household, nonfinancial business, and our government Financial
institutions facilitate exchanges of funds and financial products. ***
Building blocks of a financial system. Passing and transforming funds and
risks during transactions. ***
Buy and sell, receive and deliver, and create and underwrite financial
products. ***
The transferring of funds and risk is thus created. Capital utilization for
individual and for the whole economy is thus enhanced. Chapter 2 Introduction of
Financial Market How the stock market works (video) No homework for chapter 2 

Introduction to Capital Markets  ION Open
Courseware


Chapter 5 
Chapter 5 Time
value of Money Time
value of money (Video) The
time value of money  German Nande (video)
Chapter 5 Homework 1.
You deposit $5,000 in a saving account at 10% compounded annually.
How much is your first year interest? How much is your second year interest?
(500, 550) 2.
What is the future value of $5,000 invested for 3 years at 10%
compounded annually? ( 6,655) 3.
You just bought a TV for $518.4 on credit card. You plan to pay back
of $50 a month for this credit card debt. The credit card charges you 12% of
interest rate on the monthly basis. So how long does it take to pay back your
credit card debt? (11 months) 4.
You are going to deposit certain amount in the next four years. Your
saving account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200. How much you can withdraw four years later? (4168.35) 5.
You are going to deposit certain amount in the next four years. Your
saving account offers 5% of annual interest rate. First year: $800 Second year: $900 Third year: $1000 Fourth year: $1200. How much is the lump sum value as of today (NPV)? (3429.31) 6.
Ten years ago, you invested $1,000. Today it is worth $2,000. What
rate of interest did you earn? (7.18%) 7.
At 5 percent interest, how long would it take to triple your
money? (22.52) 8.
What is the effective annual rate if a bank charges you 12 percent
compounded monthly? (12.68%) 9.
Your father invested a lump sum 16 years ago at 8% interest for your
education. Today, that account worth $50,000.00. How much did your father
deposit 16 years ago? ($14594.50) 10. You are borrowing
$300,000 to buy a house. The terms of the mortgage call for monthly payments
for 30 years at 3% interest. What is the amount of each payment?
($1264.81) 11. You deposit $200 at
the beginning of each month into your saving account every month.
After two years (24 deposits total), your account value is $6,000. Assuming
monthly compounding, what is your monthly rate that the bank provides? (1.74%) 12. You want to buy a fancy car. For this goal,
you plan to save $5,500 per year, beginning immediately. You will make 4 deposits in an account that
pays 8% interest. Under these
assumptions, how much will you have 4 years from today? ($26,766) 13. Citi card is giving you a
good deal. You can transfer your balance from your current credit card to Citi new card with $50 balance transfer fee. The new card
charges at 5% a year. But your old card charges at 12% a year. Your balance
in your old card is $5,000. If you can afford to pay back to the credit card
of $250 a month. How much quicker does it take you to pay back your debt with
the new card? (Hint: for the new card, your debt = 5000+50=5050; Assume
monthly compounding by credit card companies). (1.28 months) 14.
Your girlfriend just won the Florida lottery. She has the choice of $40,000,000 today or
a 20year annuity of $2,850,000, with the first payment coming one year from
today. If the mutual fund of hers provides 4% of return each year for the
next 20 years, which payment option is more attractive to her? ($40million) 15.
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) 16.
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) 17.
Today,
you are purchasing a 15year, 8 percent annuity at a cost of $70,000. The
annuity will pay annual payments. What is the amount of each
payment? ($8,178.07) 18.
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) 19.
Trevor's
Tires is offering a set of 4 premium tires on sale for $450. The credit terms
are 24 months at $20 per month. What is the interest rate on this
offer? (6.27 percent) 20.
Top
Quality Investments will pay you $2,000 a year for 25 years in exchange for
$19,000 today. What interest rate are you earning on this annuity? (9.42
percent) 21.
You
have just won the lottery! You can receive $10,000 a year for 8 years or
$57,000 as a lump sum payment today. What is the interest rate on the
annuity? (8.22 percent) 22.
Around
Town Movers recently purchased a new truck costing $97,000. The firm financed
this purchase at 8.25 percent interest with monthly payments of $2,379.45.
How many years will it take the firm to pay off this debt? (4.0 years) 23.
Expansion,
Inc. acquired an additional business unit for $310,000. The seller agreed to
accept annual payments of $67,000 at an interest rate of 6.5 percent. How
many years will it take Expansion, Inc. to pay for this purchase? (5.68
years) 24.
You
want to retire early so you know you must start saving money. Thus, you have
decided to save $4,500 a year, starting at age 25. You plan to retire as soon
as you can accumulate $500,000. If you can earn an average of 11 percent on
your savings, how old will you be when you retire? (49.74 years) 25.
You
just received a credit offer in an email. The company is offering you $6,000
at 12.8 percent interest. The monthly payment is only $110. If you accept
this offer, how long will it take you to pay off the loan? (82.17
months) 26.
Fred
was persuaded to open a credit card account and now owes $5,150 on this card.
Fred is not charging any additional purchases because he wants to get this
debt paid in full. The card has an APR of 15.1 percent. How much longer will
it take Fred to pay off this balance if he makes monthly payments of $70
rather than $85? (93.04 months) 27.
Bridget
plans to save $150 a month, starting today, for ten years. Jordan plans to save
$175 a month for ten years, starting one month from today. Both Bridget and
Jordan expect to earn an average return of 8 percent on their savings. At the
end of the ten years, Jordan will have approximately _____ more than
Bridget. ($4,391) 28.
What
is the future value of weekly payments of $25 for six years at 10
percent? ($10,673.90) 29.
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) 30.
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) 
Summary
of math and excel equations Math
Equations 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 = 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 =
nominal(effective ratge, npery) First Mid Exam Study Guide Multiple Choices (23*4.3) 1. Concept question of
time value of money 2. Concept of present value, future, annuity 3. Concept question of
time value of money 4. Calculate FV given PV
and rate and nper 5. Calculate FV given PV
and rate and nper 6. Calculate FV given PV and rate and nper 7. Calculate PV given FV and rate and nper 8. Calculate rate, given pv, fv, nper 9. Calculate nper,
given pv, fv, rate 10.
Calculate nper, given pv,
fv, rate 11. Calculate rate, given pv, fv, nper 12.
At certain rate, calculate the number of years to triple your money 13. Calculate pmt, given pv, fv, rate, nper 15. Calculate pv,
given fv, rate, nper, ptm
(annuity due) 16. Calculate fv, given pv, nper, rate 17. Calculate pmt, given pv, fv, rate, nper 19. Conversion between ear and apr 20.
Conversion between ear and apr 21.
Conversion between ear and apr 22.
Conversion between ear and apr 23.
calculate pv, given fv, rate, nper 

Chapter 3 Financial Statement Analysis Experts Explain: Financial Statements (well
explained, video) *******
Part I: Balance Sheet and Income Statement ************** Home Depot (Ticker in the
market: HD) reported the following information for the year ended January 30^{th},
2011 (expressed in millions). Sales: $67,977 Cost of goods sold: $44,693 Marketing, general and
administrative expenses: $15,885 Depreciation expenses:
$1,616 Interest expense: $530 Tax rate: 36.70% Number of shares
outstanding: 1,623 Dividends paid to
stockholders: $1,569. Use the above information
to try to prepare the income statement of Home Depot
for the year ended January 30^{th}, 2011 Home Depot (Ticker in the
market: HD) reported the following information for the year ended January 30^{th},
2011 (expressed in millions). Cash: $545 Accounts receivables:
$1,085 Inventories: $10625 Other current assets:
$1,224 Gross fixed assets: $38,471 Accumulated depreciation:
$13,411 Other fixed assets: $1,586 Accounts payable: $9,080 Short term notes payable:
$1,042 Long term debt: $11,114 Total common stock: $3,894 Retained earnings: $14,995 Use the above information
to try to prepare the balance sheet of Home Depot for
the year ended January 30^{th}, 2011. 
Cash
flow template (my contribution) 

*********
Part II: Cash Flow Statement ******************

In Millions of USD (except for per share items) 
52 weeks ending 20140202 
Net Income/Starting Line 
5,385.00 
Depreciation/Depletion 
1,757.00 
Amortization 
 
Deferred Taxes 
31 
NonCash Items 
228 
Changes in Working Capital 
289 
Cash from Operating Activities 
7,628.00 
Capital Expenditures 
1,389.00 
Other Investing Cash Flow Items, Total 
118 
Cash from Investing Activities 
1,507.00 
Financing Cash Flow Items 
37 
Total Cash Dividends Paid 
2,243.00 
Issuance (Retirement) of Stock, Net 
8,305.00 
Issuance (Retirement) of Debt, Net 
3,933.00 
Cash from Financing Activities 
6,652.00 
Foreign Exchange Effects 
34 
Net Change in Cash 
565 
Cash Interest Paid, Supplemental 
639 
Cash Taxes Paid, Supplemental 
2,839.00 
Discussion:
2. What does net change in cash mean?
Now
let’s learn how to calculate cash changes in each session
Source
of cash
Use
of Cash
Cash
Flow from Operations: Five Steps
1. Add back depreciation.
2. Subtract (add) any increase (decrease) in accounts
receivable.
3. Subtract (add) any increase (decrease) in inventory.
4. Subtract (add) any increase (decrease) in other current
assets.
5. Add (subtract) any increase (decrease) in accounts payable
and other accrued expenses
Chapter 3 HW
1. For the above precision tool example, work out the cash flow statement
2.
Firm AAA just showed how it
operated in the prior year.
Sales = $2,000; Cost of Goods Sold =
$1,000; Depreciation Expense = $200; Administrative Expenses = $180; Interest
Expense = $30; Marketing Expenses = $50; and Taxes = $200. Prepare income statement
3. A firm has $2000 in current assets, $3000 in fixed assets, $300 in accounts receivables, $300 accounts payable, and $800 in cash. What is the amount of the inventory? (hint: 900)
4. A firm has net working capital of $1000. Longterm debt is $5000, total assets are $8000, and fixed assets are $5000. What is the amount of the total equity? (Hint: to find total equity, you need to calculate total debt, which is a sum of long term debt and short term debt. Short term can be found from new working capital.) (hint: 1000)
5. Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. What is the amount of tax paid? (hint: 7000)(hint: tax = taxable income * tax rate and taxable income = EBT)
6. Andre's Bakery has sales of $100,000 with costs of $50,000. Interest expense is $20,000 and depreciation is $10,000. The tax rate is 35 percent. The company also paid $3,000 for dividend. What is the retained earning? (hint: retained earning = net income  dividend)(hint: 10,000)
7. Pull out the balance sheet and the income statement of a company in your portfolio and do a simple study. Write down your analysis.
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 
(The excel file of the above cash flow statement is here)
Chapter 4: Ratio Analysis
Chapter 4 how to master analyzing financial
statement (FYI only)
Stock
screening tools
FINVIZ.com
http://finviz.com/screener.ashx
We
will focus on the following several ratios:
P/E (price per share/earning per
share, P/E < 15, a bargain)
PEG (PE ratio / growth rate. PEG<1, undervalued
stock)
EPS (earning per share)
ROA (Return on Asset = NI/TA, ROA>10% should be a
nice benchmark)
ROE (return on equity = NI/TE, ROE>15% should be
good)
Current
ratio (liquidity measure. = CA/CL,
has to be greater than one)
Quick
ratio (liquidity measure. =
(CAInventory)/CL, has to be greater than one)
Debt
Ratio (Leverage measure. = TD/TA,
need to be optimal, usually between 30% and 40%)
Gross
margin (profit measure. =
EBITDA/sales, or = Gross margin/sales, has to be positive)
Operating
margin (profit measure. = EBIT/sales, or
= operating income/sales, has to be positive)
Net
profit margin (profit measure. = NI/sales,
has to be positive)
Payout
ratio (= dividend / NI, measures
distribution to shareholders. No preferences. Usually value stocks have high
payout ratio; Growth stocks have low payout ratio).
Chapter
4 IN Class Exercise (excel file here) 

Assignment:
Calculate ratios of AAPL 

Steps 
Inputs
/ Answers 

1 
P/E = price per share
/ earning per share 

EPS  earning per share =
NI / Shares outstanding 
9.64 

NI 
53,394,000,000.00 

Shares outstanding 
5,540,000,000.00 

Price per share 
98.98 

P/E 
10.27 

2 
PEG =PE / Growth 

Assume growth rate of apple
is 15% every year, so growth = 15 

PEG =PE / Growth 
0.68 

3 
ROA = NI/TA 
18.38% 
NI 
53,394,000,000.00 

TA 
290,479,000,000.00 

4 
ROE = NI/TE 
0.45 
NI 
53,394,000,000.00 

TE 
119,355,000,000.00 

5 
Current Ratio = CA/CL 
1.109 
6 
Quick ratio = (CA 
inventory)/CL 
1.142 
Total Current Assets 
89,378.00 

Total Current Liabilities 
80,610.00 

Total Inventory 
2,349.00 

7 
Debt ratio = TD/TA 
22.19% 
TA 
290,479,000,000.00 

Total Debt 
64,462,000,000.00 

8 
Gross margin = EBITDA/sales 
40.06% 

Gross Profit (= EBITDA) 
93,626.00 
Revenue 
233,715.00 

9 
Operating
margin = EBIT / sales 
30.48% 
Operating Income 
71,230.00 

10 
Profit margin = NI/Sales 
22.85% 
Net Income 
53,394.00 

11 
Payout ratio = Total
dividend / NI 
20.54% 
Dividend per share 
1.98 

Total dividend = dividend
per share * total shares 
10,969,200,000.00 
The ratio analysis for AAPL and WMT
using 2017’s financial statement (excel file. Thanks, Ian and Igor)
Second Mid term
(2/15/2018)
Second Mid
Term Study Guide
Multiple Choice Questions (23*3.5 = 80.5)
3.
Cash flow statement structure
4.
Examples in current asset
5.
Definition of net working capital
6.
Examples of net working capital
7.
Examples of net working capital
8.
Definition of income statement, cash flow statement, and balance
sheet.
914Balance sheet questions
Review of the balance sheet
structures
1517 Income statement
questions: review of income statement structure.
1823: based on the
following tables
The following information should be used for problems :

2015 
2016 
Sales 


COGS 


Interest 


Dividends 


Depreciation 


Cash 


Accounts receivables 


Current liabilities 


Inventory 


Longterm debt 


Net fixed assets 


Common stock 


Tax rate 


17. What is the net working capital for 2016?
18. What is the change in net working capital
from 2015 to 2016?
1923. Choose source / use

Source / use 
Accounts receivables 





Source / use 
Current liabilities 





Source / use 
Inventory 






Source / use 
Longterm debt 






Source / use 
Common stock 





Short Answer Question (20 points)
Prepare
the cash flow statement of the company (template will be given).
In
class exercise (for second mid term)
Use the following information to work
out the cash flow statement of 2008
Chapter 6
Chapter
6 Risk and Return
Excel
Exercise Steps:
1. Visit
finance.yahoo.com
2. Search
for WalMart
3. Click
on historical data
4. Time
period: Feb 22 2017 – Feb 22 2018
Show: Historical price
Frequency: Monthly
5. Click
on Apply and then click on download data
6. Open
in Excel the downloaded file
7. Delete
all columns except “date” and “adj close”
8. Repeat
the above for APPLE and AMAZON (File is here for
reference)
9. Combine
the three companies into one excel file.
10. Calculate
average return and risk (standard deviation) (File is here for
reference)
Use
the following information in the in class exercise
Price collected
from Finance.Yahoo.com 
Monthly Stock
Return 

Date 
WMT price 
Apple price 
amazon price 
WMT ret 
Apple ret 
amazon ret 

3/1/2017 
70.26 
141.42 
886.54 
5.07% 
0.01% 
4.34% 

4/1/2017 
73.82 
141.41 
924.99 
4.55% 
6.34% 
7.53% 

5/1/2017 
77.18 
150.38 
994.62 
3.07% 
5.33% 
2.68% 

6/1/2017 
74.81 
142.36 
968.00 
5.70% 
3.27% 
2.04% 

7/1/2017 
79.07 
147.02 
987.78 
2.40% 
10.27% 
0.73% 

8/1/2017 
77.18 
162.11 
980.60 
0.72% 
5.66% 
1.96% 

9/1/2017 
77.73 
152.94 
961.35 
11.74% 
9.68% 
14.97% 

10/1/2017 
86.85 
167.75 
1105.28 
11.36% 
1.66% 
6.47% 

11/1/2017 
96.72 
170.54 
1176.75 
1.56% 
1.17% 
0.62% 

12/1/2017 
98.23 
168.54 
1169.47 
8.52% 
1.06% 
24.06% 

1/1/2018 
106.60 
166.75 
1450.89 
14.15% 
2.17% 
2.21% 

2/1/2018 
91.52 
170.38 
1482.92 




Summary and
Comparison 

WMT 
APPLE 
Amazon 

Average monthly
stock return 
2.69% 
1.83% 
5.06% 

Standard
Deviation of monthly stock return 
7.46% 
5.32% 
8.12% 

Summary: AMAZON
has the highest average return in the prior year. Its risk is also the
highest. 

It is the best
investment among the three. Apple's performance is the worst. Its return is
the lowest. 

Its risk is not
low enough to compensate for the low return among the three stocks.


Regression line
of AMAZON 

Results: 

Amazon return 

= 1.8* S&P500 return + 0.03 

So Beta of
AMAZON=1.8 

Or use slope
function 

beta of amazon 
1.81 

HW of chapter 6 (due before the 3^{rd} mid term)
Chapter
6 Homework (some of the questions are
used as in class exercise questions)
1)
Stock A has the following returns for various states of the economy: (FYI:
calculator here)
State
of
the
Economy Probability Stock
A's Return
Recession 10% 30%
Below
Average 20% 2%
Average 40% 10%
Above
Average 20% 18%
Boom 10% 40%
Stock
A's expected return is?
2)
Joe purchased 800 shares of Robotics Stock at $3 per share on 1/1/09. Bill
sold the shares on 12/31/09 for $3.45. Robotics stock has a beta of 1.9, the
riskfree rate of return is 4%, and the market risk premium is 9%. Joe's
holding period return is?
3. You
own a portfolio with the following expected returns given the various states
of the economy. What is the overall portfolio expected return?
State
of
economy probability
of state of economy rate
of return if state occurs
Boom 27% 14%
Normal 70% 8%
Recession 3% 11%
4)
The prices for the Electric Circuit Corporation for the first quarter of 2009
are given below. The price of the stock on January 1, 2009 was
$130. Find the holding period return for an investor who purchased the stock onJanuary 1, 2009 and sold it the last day of March
2009.
Month
End Price
January $125.00
February 138.50
March 132.75
5)
Collectibles Corp. has a beta of 2.5 and a standard deviation of returns of
20%. The return on the market portfolio is 15% and the risk free rate is 4%.
What is the risk premium on the market?
6)
An investor currently holds the following portfolio:
Amount
Invested
8,000
shares of
Stock A $16,000 Beta = 1.3
15,000
shares of Stock B $48,000 Beta = 1.8
25,000
shares of Stock C $96,000 Beta = 2.2
The
beta for the portfolio is?
7)
Assume that you have $165,000 invested in a stock that is returning 11.50%,
$85,000 invested in a stock that is returning 22.75%, and $235,000 invested
in a stock that is returning 10.25%. What is the expected return of your
portfolio?
8)
If you hold a portfolio made up of the following stocks:
Investment
Value Beta
Stock
A $8,000 1.5
Stock
B $10,000 1.0
Stock
C $2,000 .5
What
is the beta of the portfolio?
9. The riskfree rate of
return is 3.9 percent and the market risk premium (r_{m} –r_{f}) is 6.2 percent. What is the expected rate
of return on a stock with a beta of 1.21?
10. You own a portfolio consisting of the stocks below.
Stock Percentage
of
portfolio Beta
1. 20% 1
2. 30% 0.5
3. 50% 1.6
The risk free rate is 3% and
market return is 10%.
a. Calculate
the portfolio beta.
b. Calculate
the expected return of your portfolio.
11. Computing holding period return for Jazman and Solomon for period 1 through 3 (bought in
period 1 and sold in period 3). Show the holding period returns for each
company.
Period Jazman Solomon
1 $10 $20
2 $12 $25
3 $15 $15
12. Calculate expected return
State of the economy 
Probability of the states 
% Return (Cash Flow/Inv. Cost) 
Economic Recession 
30% 
5% 
Strong and moderate Economic Growth 
70% 
15% 
13. Calculate the expected returns of the
following cases, respectively
1) Invest
$10,000 in Treasury bill with guaranteed return of 4%.
2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment.
3) Investment
$10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment.
14. Rank the risk of the following cases, from
the least risky one the most risky one
1) Invest
$10,000 in Treasury bill with guaranteed return of 4%.
2) Investment
$10,000 in Apple. 50% possibility to earn 20% return and 50% possibility to
lose 10% of investment.
3) Investment
$10,000 in WalMart. 50% possibility to earn 5% return and 50% possibility to
earn 0% of investment.
15. An
investor currently holds the following portfolio:
Amount
Invested
8,000
shares of
Stock A $10,000 Beta = 1.5
15,000
shares of Stock B $20,000 Beta = 0.8
25,000
shares of Stock C $20,000 Beta = 1.2
Calculate
the beta for the portfolio.
16. Joe
purchased 800 shares of Robotics Stock at $5 per share on 1/1/13. Bill sold
the shares on 4/18/13 for $6. Robotics stock has a beta of 1.2, the riskfree
rate of return is 1%, and the market risk premium is 10%. Joe's holding
period return is how much?
Excel
Command:
sumproduct(array1,
array2)
stdev(observation1, obv2, obv3,….)
correl(stock
1’s return, stock 2’s return)
beta
= slope(stock return, sp500 return)
CAPM Calculator (Thanks TO Dr. Lane)
The CAPM Calculator can be used to solve problems based upon the Security
Market Line (SML) from the Capital Asset Pricing Model.
The calculator is able to solve for any of the four possible variables given
the value of the other three variables.
1.
Expected Return on Stock i Field  The Expected Return on Stock i is displayed or entered in this field.
2.
Risk Free Rate Field  The Risk Free Rate is displayed or entered in this
field.
3.
Expected Return on the Market Field  The Expected Return on the Market
Portfolio is displayed or entered in this field.
4.
Beta for Stock i Field  The Beta for Stock i
is displayed or entered in this field.
5.
Buttons  Press these buttons to calculate the corresponding
value.
o E[R_{i}] Button  Press to calculate the Expected Return on Asset i.
o Rf Button  Press to calculate the Risk Free Rate.
o E[R_{m}] Button  Press to calculate the Expected Return on the Market
Portfolio.
o Beta Button  Press to calculate the Beta for Asset i.
(from zenwealth.com)
Thanks to Dr. Lane
The Expected Return Calculator calculates the Expected
Return, Variance, Standard Deviation, Covariance, and Correlation Coefficient
for a probability distribution of asset returns.
1.
Input
Fields  Enter the
Probability, Return on Stock 1, and Return on Stock2 for each state in these
fields. The sum of the probabilities must equal 100%.
2.
Expected
Return Fields 
The Expected Returns on Stocks 1 and 2 are displayed here.
3.
Variance
Fields  The
Variance of the returns on Stocks 1 and 2 are displayed here.
4.
Standard
Deviation Fields 
The Standard Deviation of the returns on Stocks 1 and 2 are displayed here.
5.
Covariance
Field  The
Covariance between the returns on Stocks 1 and 2 is displayed here.
6.
Correlation
Coefficient Field 
The Correlation Coefficient between the returns on Stocks 1 and 2 is
displayed here.
7.
Buttons  Press the Calculate Button
to calculate the Expected Return, Variance, etc. for Assets 1 and 2. Press
the Clear Button to reset the calculator.
Chapter
7 Bond pricing
Simplified Balance Sheet of WalMart
In Millions of USD 
As
of 20140131 
Total Assets 
204,751.00 
Total Current Liabilities 
69,345.00 
Long Term Debt 
41,771.00 
Other liabilities 
17,380.00 
Total Liabilities 
128,496.00 
Total Equity 
76,255.00 
Total Liabilities & Shareholders' Equity 
204,751.00 
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
Chapter 7 Study guide
Bond Cash Flow:
1. 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 IBM
Or, just go to www.finra.org, è Investor center è market data è bond è corporate bond
Corporate
Bond

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 3%, 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
For example, when the annual
coupon bond is selling for $1,200, what is its return to investors?
For example, when the semiannual
coupon bond is selling for $1,200, what is its return to investors?
5. Current
yield: For the above bond, calculate current yield.
6. Zero
coupon bond: coupon=0 and treat it as semiannual coupon bond.
Example: A ten year zero coupon bond
is selling for $400. How much is its yield to maturity?
A ten year zero coupon
bond’s yield to maturity is 10%. How much is its price?
7. Understand
what is bond rating and how to read those
ratings.
a. Who
are Moody, S&P and Fitch?
b. What
is IBM’s rating?
c. Is
the rating for IBM the highest?
d. Who
earned the highest rating?
Chapter 7 Home Work
(due before the 3^{rd} mid term)
1. IBM
5 year 2% annual coupon bond is selling for $950. How much
this IBM bond’s YTM? 3.09%
2. IBM
10 year 4% semi_annual coupon bond
is selling for $950. How much is this IBM bond’s YTM? 4.63%
3. IBM
10 year 5% annual coupon bond offers 8% of return. How much
is the price of this bond? 798.7
4. IBM
5 year 5% semiannual coupon bond offers 8% of return. How
much is the price of this bond? $878.34
5. IBM
20 year zero coupon bond offers 8% return. How much is the price of this
bond? 208.29
6. 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? 8.9%
7. 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
8. 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
9. 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 the YTM? 6.29%
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? What is the current yield? 6.14% 6.67%
Third mid term (3/29/2018)
Study Guide
Multiple Choices (30*3.33=100, 120 from chapter 6
and 2130 from chapter 7)
company 1 
company 2 
market 

1/1/2018 
1% 
3% 
10% 

12/1/2017 
2% 
4% 
20% 

11/1/2017 
3% 
3% 
30% 

10/1/2017 
4% 
5% 
40% 

Refer to the above table to answer questions 112.
1. company 1’s average return?
2. company 1’s standard deviation)?
3. Company 1’s beta?
4. correlation between company 1 and company 2?
5. Company 1 and 2 seems to be good choice when thinking about setting up a portfolio?
6. Compare risk between firm 1 and 2.
7. What is correlation? The range of correlation?
8. Using CAPM to calculate firm’s return, all else given.
9. Questions based on SML: slope, intercept, equation
10.
Economy Probability Stock
A's Return
Recession 10% 3%
Average 50% 1%
Boom 40% 20%
Stock A's expected return is?
11.
holding
period return =?, given a series of stock prices.
12.
Given fund composition and beta of each stock and calculate
portfolio beta
13. What is systematic risk.
WALMART STORES INC
Coupon Rate 7% Maturity
Date 04/22/2050
Symbol 
CUSIP 
Next Call Date 01/22/2019 
Callable Yes 
Last Trade Price $145.21 
Last Trade Yield 3% 
Last Trade Date 3//26/2018 
US Treasury Yield — 
Credit and Rating Elements
Moody's
Rating 
Aa2 (3//26/2018) 

Standard
& Poor's Rating 
AA (3//26/2018) 

Coupon
Payment Frequency 
SemiAnnual 

Refer to the above table and answer questions
2128.
14. coupon?
15. What does the rating indicate?
16. What does callable mean?
17. Calculate the current yield based on the above table.
18. Imagine that the interest rate has increased to 10%. Calculate the new bond price. Semiannual coupon
19. Imagine that the interest rate has increased to 10%. Calculate the new bond price. annual, coupon
20. Imagine that the price is $700. Calculate the new yield to maturity. Semiannual coupon
21. Imagine that the price is $850. Calculate the new yield to maturity. Semiannual coupon
22. For a zero coupon bond, calculate price, all else given
23. For a zero coupon bond, calculate YTM, all else given
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
Math Formula (FYI)
C:
Coupon, M: Par, $1,000; i: Yield to maturity; n:
years left to maturity
For
Semiannual, F=2 for semiannual coupon
M:
Par, $1,000; i: Yield
to maturity; n: years left to maturity
Bond calculation (Thanks to Dr. Lane)
The Bond Calculator can be used to Price Bonds
and to determine the YieldtoMaturity and YieldtoCall on Bonds. It works
similarly to the Time Value Of Money functions of the Texas Instruments BA II
Plus calculator.
FYI:http://finramarkets.morningstar.com/BondCenter/TRACEMarketAggregateStats.jsp
Most Active Investment Grade Bonds
Issuer
Name 
Symbol 
Coupon 
Maturity 
Moody’s®/S&P 
High 
Low 
Last 
Change 
Yield% 
AT&T
INC 
2.850% 
02/14/2023 
Baa1/BBB+ 
100.09900 
99.64600 
100.04500 
0.295000 
2.839707 

AT&T
INC 
3.900% 
08/14/2027 
Baa1/BBB+ 
100.29600 
99.64537 
100.25000 
0.029000 
3.867290 

AT&T
INC 
4.900% 
08/14/2037 
Baa1/BBB+ 
100.58400 
98.86400 
100.25000 
1.150000 
4.879186 

CVS
HEALTH CORP 
4.780% 
03/25/2038 
Baa1/BBB 
101.11900 
98.90300 
99.37100 
0.329000 
4.829014 

AT&T
INC 
3.400% 
08/14/2024 
Baa1/BBB+ 
100.30000 
100.03600 
100.23200 
0.017000 
3.358417 

CVS
HEALTH CORP 
3.700% 
03/09/2023 
Baa1/BBB 
100.79570 
98.37800 
99.40800 
0.004000 
3.832083 

WELLS
FARGO & CO NEW MEDIUM TERM SR NTS 
3.300% 
09/09/2024 
A2/A 
98.45200 
96.18500 
96.91300 
0.183000 
3.843921 

CVS
HEALTH CORP 
5.050% 
03/25/2048 
Baa1/BBB 
102.45221 
101.82400 
102.43300 
0.110000 
4.892994 

CVS
HEALTH CORP 
4.300% 
03/25/2028 
Baa1/BBB 
100.87800 
98.09300 
100.00000 
1.093000 
4.299527 

VERIZON
COMMUNICATIONS INC 
4.125% 
08/15/2046 
Baa1/BBB+ 
88.60800 
87.23900 
88.60800 
0.442000 
4.869433 
Most Active High Yield Bonds
Issuer
Name 
Symbol 
Coupon 
Maturity 
Moody’s®/S&P 
High 
Low 
Last 
Change 
Yield% 
ANHEUSERBUSCH
INBEV WORLDWIDE INC 
4.600% 
04/15/2048 
/ 
101.01800 
99.43400 
100.45000 
0.355000 

ANHEUSERBUSCH
INBEV WORLDWIDE INC 
4.000% 
04/13/2028 
/ 
100.77100 
99.21600 
99.76200 
0.318000 

ANHEUSERBUSCH
INBEV WORLDWIDE INC 
4.375% 
04/15/2038 
/ 
99.90600 
98.55500 
99.90600 
0.816000 

ANHEUSERBUSCH
INBEV WORLDWIDE INC 
4.750% 
04/15/2058 
/ 
100.30600 
99.37700 
99.78400 
0.212000 

ANHEUSERBUSCH
INBEV WORLDWIDE INC 
3.500% 
01/12/2024 
/ 
100.50800 
99.50700 
99.78100 
0.155000 

DELL
INC 
5.875% 
06/15/2019 
Ba2/BB 
103.62400 
101.75000 
101.75000 
0.875000 
4.388649 

SLM
CORP MEDIUM TERM NTS BOOK ENTRY 
5.500% 
01/15/2019 
Ba3/B+ 
101.77100 
100.18600 
100.18600 
0.908000 
5.252094 

IHEARTCOMMUNICATIONS INC 
10.625% 
03/15/2023 
Caa2/D 
80.12500 
79.87500 
80.00000 
0.250000 

CENOVUS
ENERGY INC 
4.250% 
04/15/2027 
Ba2/ 
96.98200 
96.52200 
96.89600 
0.152000 
4.673772 

CHS
/ CMNTY HEALTH SYS INC 
6.250% 
03/31/2023 
B2/B 
93.07500 
91.93750 
92.00000 
2.350000 
8.226991 
Chapter 8 Stock Valuation
Chapter 8 Study Guide
. Calculate stock prices
1) Given next dividends and price
Po= (D_{1} + P_{1})/ (1+r)
Po= (D_{1})/ (1+r) + (D_{2} + P_{2})/ (1+r)^2
Po= (D_{1})/ (1+r) + (D_{2} )/ (1+r)^2 + (D_{3} + P_{3})/ (1+r)^3
Po= (D_{1})/ (1+r) + (D_{2} )/ (1+r)^2 + (D_{3})/ (1+r)^3+ (D_{4} + P_{4})/ (1+r)^4
……
2) Given all dividends – Dividend growth
model
Po= D1/(rg) or Po= Do*(1+g)/(rg)
R = D1/Po+g = Do*(1+g)/Po+g
D1=Do*(1+g); D2= D1*(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?
2.
The current market price of stock is $90 and
the stock pays dividend of $3 with a growth rate of 5%. What is the return of
this stock?
Imagine you bought 100
shares of WalMart (Ticker: WMT) a year ago.
1. How is your holding
period return in the prior year?
Price in Dec 3^{rd}
of 2014 was $84.94 and price of Dec 3^{rd} of 2015 is $58.78.
2.
from google.com/finance for WalMart (NYSE:WMT)
86.051.45 (1.66%)
Previous Close 
87.50 
Open 
87.96 
Bid 
86.05 x 500 
Ask 
86.20 x 100 
Day's Range 
85.48  88.04 
52 Week Range 
69.33  109.98 
Volume 
6,395,554 
Avg. Volume 
11,923,339 
Market Cap 
254.913B 
Beta 
0.48 
PE Ratio (TTM) 
26.23 
EPS (TTM) 
3.28 
Earnings Date 
May 17, 2018 
Forward Dividend & Yield 
2.08 (2.39%) 
ExDividend Date 
20180510 
1y Target Est 
105.32 
What does each item indicate?
3. You
own 100 shares of WMT. Are you a significant shareholder of WMT? What type of
rights you have as minor shareholders?
4. If
WMT runs into trouble, how risky is your investment in WMT? Compare with
Treasury bill investors, Treasury bond investors, WMT bond investors, Apple
stock holders, etc.
5. Doug
McMillon is the CEO of WalMart. Do you have any
suggestive advices for him? How can you let him hear from you? How much do
you trust him not to abuse your investment? Are there any ways to discipline
him?
HW of chapter 8 (due before 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? (answer:
14.6%)
2. Douglass Gardens pays an annual dividend that is expected to
increase by 4.1 percent per year. The stock commands a market rate of return
of 12.6 percent and sells for $24.90 a share. What is the expected amount of
the next dividend? (answer: 2.12)
3. IBM just paid $3.00 dividend per share
to investors. The dividend growth rate is 10%. What is the expected dividend
of the next year? (answer: 3.3)
4. You bought 1 share of HPD for $20 in May
2008 and sold it for $30 in May 2009. How much is the holding period return? (answer: 50%)
5. The current market price of stock is $50 and the stock is expected
to pay dividend of $2 with a growth rate of 6%. How much is the expected
return to stockholders? (answer: 10%)
6. The stockholder’s expected return is 8% and
the stock is expected to pay dividend of $2 with a growth rate of 4%. How
much should the stock be traded for? (answer: 50)
7. The stockholder’s expected return is 8% and
the stock is expected to pay dividend of $2 with a growth rate of 4%. How much is the dividend expected to be
three years from now? (Hint: D_{3 }= D_{2}*(1+g) = D_{1}*(1+g)^{2}
)(answer: 2.16)
8. Kilsheimer Company just paid a dividend of $5 per share.
Future dividends are expected to grow at a constant rate of 7% per year. The
value of the stock is $42.80. What is the required return of this stock?(answer: 19.5%)
9.
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?(answer: 70.67)
10. Douglass Gardens pays an annual
dividend that is expected to increase by 6 percent per year. The stock
commands a market rate of return of 12.6 percent and sells for $24.90 a
share. What is the dividend yield of this stock? (answer: 6.6%)
Dividend Growth
model template excel simple version  my
contribution (FYI)
Where Po:
current stock price; D1: next period dividend; r: stock return; g: dividend growth
rate
Do: current
dividend
Stock Calculator (Constant Growth)
Thanks
to Dr. Lane
The Constant
Growth Stock Calculator can
be used to find the value of a Constant Growth Stock. The calculator can also
be used to solve for the Current Dividend (D0), the Next Dividend (D1), the
Dividend Growth Rate (g), or Required Return (r) given the values of the
other variables.
Useful website
money.msn.com/investing