­­­ FIN301 Class Web Page, Summer' 19

Instructor: Maggie Foley

Jacksonville University

 

The Syllabus    

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

 

Chapter 1, 2

Marketwatch Stock Trading Game (Pass code: havefun)

Use the information and directions below to join the game.

1.  URL for your game: 
https://www.marketwatch.com/game/jufin301-summer

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!

Discussion:  How to pick stocks (finviz.com)

Daily earning announcement: http://www.zacks.com/earnings/earnings-calendar

IPO schedule:  http://www.marketwatch.com/tools/ipo-calendar

 

FYI:  MarketWatch Stock Game written by Maelyn O’Connor (Thanks, Maelyn)

 

 

Chapter  1: Introduction

image001.jpg

 Note:

Flow of funds describes the financial assets flowing from various sectors through financial intermediaries for the purpose of buying physical or financial assets.

*** Household, non-financial 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

ppt

 

1.     What are the six parts of the financial markets

Money:

·         To pay for purchases and store wealth (fiat money, fiat currency)

Financial Instruments:

·         To transfer resources from savers to investors and to transfer risk to those best equipped to bear it.  

Financial Markets:

·         Buy and sell financial instruments

·         Channel funds from savers to investors, thereby promoting economic efficiency

·         Affect personal wealth and behavior of business firms. Example?

Financial Institutions.

·         Provide access to financial markets, collect information & provide services

·         Financial Intermediary: Helps get funds from savers to investors

Central Banks

·         Monitor financial Institutions and stabilize the economy

Regulatory Agencies

·         To provide oversight for financial system.

 

2.      What are the five core principals of finance

  • Time has value
  • Risk requires compensation
  • Information is the basis for decisions
  • Markets determine prices  and allocation resources
  • Stability improves welfare

 

Introduction to Capital Markets - ION Open Courseware (Video)

How the stock market works (video)

 

No homework for chapter 2

 

  

Chapter 5

Chapter 5 Time value of Money

ppt

Time value of money (Video)

The time value of money - German Nande (video)

Chapter 5 in class exercise

image002.jpg

 

Chapter 5 Homework (due with mid term)  

 

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 20-year 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 15-year, 8 percent annuity at a cost of $70,000. The annuity will pay annual payments. What is the amount of each payment? ($8,178.07)

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 tod7ay, 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 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)

31.   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)

  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)^m-1

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

 

image003.jpg

 

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 rate,  npery)

 

 

 

 

Calculators (FYI)

 

 

Time value of money

 

NPV, IRR

 

NPV, NFV

 

EAR

 

APR

 

 

Chapter 6 Risk and Return

ppt

Chapter 6 In Class Exercise   

Use the following information in the in class exercise

 

Excel file here  (updated)

 

 

Excel Exercise Steps:

1.      Visit finance.yahoo.com

2.      Search for WalMart, Amazon, Apple, and S&P500

3.      Click on historical data

4.      Time period: 5/1/2014 – 5/1/2019

Show: Historical price

Frequency: Monthly

5.      Click download data

6.      Open in Excel the downloaded file

7.      Delete all columns except “date” and “adj close”

8.      Repeat the above for Amazon, Apple, and S&P500

9.      Combine the three companies into one excel file.

10.  Calculate average return and risk (standard deviation), correlation matrix, portfolio returns and portfolio standard deviation,

11. Calculate Beta, stock return based on CAPM, and draw SML

 

 

Class videos Monday 5/20 Part I    Part II    Part III    Part IV

 

How to understand the following graph?

 

image011.jpg

How to understand the following graph?

 

image012.jpg

 

 

 

Other exercises:

 

1.     What is Holding Period Return?

Example:

You bought 1 share of HPD for $19.70 in May 2008 and sold it for $32.32 in May 2009. The company paid divided of 8 cents every quarter during the last two years.

How much is holding period return?

 

2.      Stock A has the following returns for various states of the economy:

 State of

the Economy         Probability       Stock A's Return

Recession              20%                 -30%

Average                 60%                 10%

Boom                    10%                 40%

Stock A's expected return is? Standard deviation?

 

Expected Return:

image013.gif

Variance:

image014.gif

Standard Deviation:

image015.gif

(or use calculator at www.jufinance.com/return)

 

 

Wednesday  5/22    Part I     Part II     Part III    

 

 

HW of chapter 6   (Due with mid term)  

Chapter 6 Homework 

1) Stock A has the following returns for various states of the economy:

 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 risk-free 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 risk-free rate of return is 3.9 percent and the market risk premium (rm –rf) 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 Wal-Mart. 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 Wal-Mart. 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 risk-free 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))

 

 

image010.jpg

 

image009.jpg

 

 


CAPM Calculator
 

 

 

Expected return Calculator

 

 

Two Stock Portfolio Calculator

 

 

 

Risk and Return Template

 

 

 

image037.jpg

 

 

Expected Return:

https://www.zenwealth.com/businessfinanceonline/RR/images/ER.gif

Variance:

https://www.zenwealth.com/businessfinanceonline/RR/images/Var.gif

Standard Deviation:

https://www.zenwealth.com/businessfinanceonline/RR/images/SD.gif

Chapter 3 Financial Statement Analysis

 

ppt

 

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 30th, 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 30th, 2011 

 

Home Depot (Ticker in the market: HD) reported the following information for the year ended January 30th, 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 30th, 2011.

 

Income Statement calculator

 

Balance Sheet calculator

 

Cash flow calculator 

********* Part II: Cash Flow Statement  ******************
Cash flow animation
 (video)

 

Here is the cash flow statement of home depot as of 2/2/2014.

 

In Millions of USD (except for per share items)

52 weeks ending 2014-02-02

Net Income/Starting Line

5,385.00

Depreciation/Depletion

1,757.00

Amortization

-

Deferred Taxes

-31

Non-Cash 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:

1.      What are the three components of cash flow statement?

2.      What does net change in cash mean?

image003.jpg

 

Now let’s learn how to calculate cash changes in each session

Source of cash

  • Decrease in an Asset
    • Example: Selling inventories or collecting receivables provides cash
  • Increase in Liability or Equity
    • Example: Borrowing funds or selling stocks provides cash

Use of Cash

  • Increase in an Asset
    • Example: Investing in fixed assets or buying more inventories uses cash
    • Decrease in Liability or Equity
    • Example: Paying off a loan or buying back stock uses 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

 

image004.jpg

 

Chapter 3 HW  (due with mid term)

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. Long-term 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)

 

 

 

image005.jpg

 

 

image006.jpg

 

 

Exercise:
Prepare the cash flow statement based on the above information

Chapter 4: Ratio Analysis

 

Ppt

 

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. = (CA-Inventory)/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).

 

Nike ---  Valuation

P/E Current

70.74

P/E Ratio (w/o extraordinary items)

61.37

Price to Sales Ratio

3.28

Price to Book Ratio

11.72

Price to Cash Flow Ratio

24.04

Enterprise Value to EBITDA

25.71

Enterprise Value to Sales

3.62

Total Debt to Enterprise Value

0.03

Efficiency

Revenue/Employee

497,442.00

Income Per Employee

26,443.00

Receivables Turnover

10.14

Total Asset Turnover

1.59

Liquidity

Current Ratio

2.51

Quick Ratio

1.63

Cash Ratio

0.87

Profitability

Gross Margin

44.03

Operating Margin

12.38

Pretax Margin

11.89

Net Margin

5.32

Return on Assets

8.44

Return on Equity

17.4

Return on Total Capital

30.17

Return on Invested Capital

13.26

Capital Structure

Total Debt to Total Equity

38.83

Total Debt to Total Capital

27.97

Total Debt to Total Assets

16.91

Long-Term Debt to Equity

35.34

Long-Term Debt to Total Capital

25.46

www.marketwatch.com

 

 Between Nike and GoPro, which one is better? How can you tell?

 

 

Class videos Part I           Part II            Part III          Part IV

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GoPro ---

Valuation

P/E Current

-5.55

P/E Ratio (with extraordinary items)

-6.59

Price to Sales Ratio

0.89

Price to Book Ratio

3.47

Enterprise Value to EBITDA

-10.29

Enterprise Value to Sales

0.83

Total Debt to Enterprise Value

0.14

Efficiency

Revenue/Employee

926,741.00

Income Per Employee

-143,655.00

Receivables Turnover

8.5

Total Asset Turnover

1.33

Liquidity

Current Ratio

1.55

Quick Ratio

1.14

Cash Ratio

0.67

Profitability

Gross Margin

34.86

Operating Margin

-11.37

Pretax Margin

-14.95

Net Margin

-15.5

Return on Assets

-20.63

Return on Equity

-49.05

Return on Total Capital

-30.64

Return on Invested Capital

-41.77

Capital Structure

Total Debt to Total Equity

43.54

Total Debt to Total Capital

30.33

Total Debt to Total Assets

15.3

Long-Term Debt to Equity

43.54

Long-Term Debt to Total Capital

30.33

www.marketwatch.com

Mid term between 5/31 and 6/2, will be posted on blackboard under course introduction

Take home exam. Individual work, please

 

 

Chapter 7 Bond pricing

Ppt

Simplified Balance Sheet of WalMart

 

In Millions of USD 

As of 2014-01-31

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?

 

Investing Basics: Bonds(video)

 

FINRA – Bond market information

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

 

Chapter 7 Study guide  

1.      Go to http://cxa.gtm.idmanagedsolutions.com/finra/BondCenter/Default.aspx , the bond market data website of FINRA to find bond information. For example, find bond sponsored by IBM

Or, just go to www.finra.orgč Investor center č market data č bond č corporate bond

 

 

Corporate Bond

 

Issuer Name

Symbol

Callable

Sub-Product Type

Coupon

Maturity

Moody's®

S&P

Price

Yield

WALMART INC

WMT.GP

Corporate Bond

7.55

02/15/2030

Aa2

AA

142.426

2.905

WALMART INC

WMT.GG

Corporate Bond

6.75

10/15/2023

Aa2

AA

118.81

2.219

WALMART INC

WMT.HV

Corporate Bond

5.25

9/01/2035

Aa2

AA

124.975

3.257

WALMART INC

WMT.IA

Corporate Bond

5.875

4/05/2027

Aa2

AA

122.533

2.668

WALMART INC

WMT.IC

no

Corporate Bond

6.5

08/15/2037

Aa2

AA

139.878

3.514

WALMART INC

WMT.IE

No

Corporate Bond

6.2

04/15/2038

Aa2

AA

136.429

3.537

WALMART INC

WMT.IJ

Corporate Bond

5.625

4/01/2040

Aa2

AA

129.89

3.577

WALMART INC

WMT.AB

No

Corporate Bond

5.625

04/15/2041

Aa2

AA

131.722

3.53

WALMART INC

WMT4117477

Yes

Corporate Bond

3.3

04/22/2024

Aa2

AA

103.758

2.437

WALMART INC

WMT4117478

Yes

Corporate Bond

4.3

04/22/2044

Aa2

AA

110.812

3.628

WALMART INC

WMT3991377

Yes

Corporate Bond

4

4/11/2043

Aa2

AA

106.786

3.569

WALMART INC

WMT3991485

Yes

Corporate Bond

2.55

4/11/2023

Aa2

AA

100.78

2.323

 

 

 

 

2.      2. Understand what is coupon, coupon rate, yield, yield to maturity, market price, par value, maturity, annual bond, semi-annual bond, current yield.

 

3.      3. Understand how to price bond

Bond price = abs(pv(yield, maturity, coupon, 1000))  ------- annual coupon

Bond price = abs(pv(yield/2, maturity*2, coupon/2, 1000)) ------- semi-annual coupon

 

Also change the yield and observe the price changes. Summarize the price change pattern and draw a graph to demonstrate your findings.

 

Again, when yield to maturity of this semi_annual coupon bond is 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 – semi-annual coupon

 

For example, when the annual coupon bond is selling for $1,200, what is its return to investors?

 

For example, when the semi-annual 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 semi-annual coupon bond.

Example: A ten year zero coupon bond is selling for $400. How much is its yield to maturity?

A ten year zero coupon bond’s yield to maturity is 10%. How much is its price?

 

7.      Understand what is bond rating and how to read those ratings. (based on z score. What is z score?)

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 with final)

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% semi-annual 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 implicit interest, in dollars, for the first year of the bond's life? 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?  6.14%

 

 

 

Class videos

 

Part I           Part II          Part III           Part IV

 

 

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

 

 

Math Formula (FYI)

 

image020.jpg

C: Coupon, M: Par, $1,000; i: Yield to maturity; n: years left to maturity

 

 

image021.jpg

For Semi-annual, F=2 for semi-annual coupon

 

 

image022.jpg

M: Par, $1,000;  i: Yield to maturity; n: years left to maturity

 

image023.jpg

 

 

Bond calculation  (Thanks to Dr. Lane)

www.jufinance.com/bond

 

FINRA TRACE Bond Market ActivityView: Corporate 144A Agency Structured Products

 

All Issues

Investment Grade

High Yield

Convertible

Total Issues Traded

8643

6407

2070

166

Advances

5316

4527

722

67

Declines

2869

1648

1135

86

Unchanged

65

31

29

5

52 Week High

1619

1495

121

3

52 Week Low

136

44

82

10

Dollar Volume*

29373

20709

7513

1149

* Par value in millions

 

 

Most Active Investment Grade Bonds

Issuer Name

Symbol

Coupon

Maturity

Moody’s®/S&P

High

Low

Last

Change

Yield%

INTERNATIONAL BUSINESS MACHS CORP

IBM4832197

4.250%

05/15/2049

A1/A

102.79852

101.65600

102.76300

0.783000

4.089047

INTERNATIONAL BUSINESS MACHS CORP

IBM4832195

3.500%

05/15/2029

A1/A

102.22000

101.57200

102.14700

0.702000

3.245560

INTERNATIONAL BUSINESS MACHS CORP

IBM4832194

3.300%

05/15/2026

A1/A

101.47800

100.85300

101.44000

0.505000

3.068078

INTERNATIONAL BUSINESS MACHS CORP

IBM4832196

4.150%

05/15/2039

A1/A

102.83900

101.03900

102.64300

0.363000

3.957019

INTERNATIONAL BUSINESS MACHS CORP

IBM4832193

3.000%

05/15/2024

A1/A

100.92200

100.49800

100.92200

0.405000

2.798919

GE CAP INTL FDG CO MEDIUM TERM NTS BOOK

GE4373445

4.418%

11/15/2035

Baa1/BBB+

95.45700

94.91200

95.45700

-0.120000

4.820977

PETROLEOS MEXICANOS

PEMX4447364

6.750%

09/21/2047

Baa3/

93.50000

89.50000

93.12700

2.127000

7.327999

SHERWIN-WILLIAMS CO

SHW4491957

2.250%

05/15/2020

Baa3/BBB

99.96500

99.43000

99.56300

-0.041000

2.719676

ABBVIE INC

ABBV4241922

2.500%

05/14/2020

Baa2/A-

100.17000

99.30000

99.30000

-0.550000

3.257578

SHELL INTL FIN B V

RDS4242315

2.125%

05/11/2020

Aa2/

99.78100

99.38100

99.61600

0.010000

2.541897

Most Active High Yield Bonds

Issuer Name

Symbol

Coupon

Maturity

Moody’s®/S&P

High

Low

Last

Change

Yield%

TEVA PHARMACEUTICAL FIN NETH III B V

TEVA4384553

3.150%

10/01/2026

Ba2/

79.29900

73.75000

76.50000

-0.125000

7.355862

PETROBRAS GLOBAL FIN B V

PTRB4443368

7.375%

01/17/2027

Ba2/

113.00000

110.20000

112.45000

1.260000

5.361652

WEATHERFORD INTL LTD

WFT4557155

9.875%

02/15/2024

Ca/

50.50000

49.25000

49.50000

-1.750000

30.911975

WEATHERFORD INTL LTD

WFT4373269

8.250%

06/15/2023

Ca/

49.75000

49.50000

49.75000

-2.750000

30.866940

MALLINCKRODT INTL FIN SA

MNK4112138

4.750%

04/15/2023

Caa1/B-

62.50100

60.50000

62.27000

-0.230000

18.951083

PETROBRAS GLOBAL FIN B V

PTRB4808419

6.900%

03/19/2049

Ba2/

101.35000

99.75000

100.35000

0.350000

6.871119

TEVA PHARMACEUTICAL FIN NETH III B V

TEVA4384554

4.100%

10/01/2046

Ba2/

65.47200

64.21900

65.00000

-0.500000

6.986865

FRONTIER COMMUNICATIONS CORP

FTR4360653

10.500%

09/15/2022

Caa1/CCC+

74.04000

71.69900

72.75000

-0.750000

22.690025

NEWMARK GROUP INC

BGCP4799708

6.125%

11/15/2023

/BB+

102.75600

102.20000

102.26800

-0.982000

5.533062

PACIFIC GAS & ELEC CO

PCG.IX

6.050%

03/01/2034

WR/D

101.06250

100.00000

101.00000

1.250000

Chapter 8 Stock Valuation

 

ppt

 

Dividend Growth Model

    

 What is dividend growth model? 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

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

 

Record Dates

Payable Dates

Amount

Type

March 9, 2018

April 2, 2018

$0.52

Regular Cash

May 11, 2018

June 4, 2018

$0.52

Regular Cash

Aug. 10, 2018

Sept. 4, 2018

$0.52

Regular Cash

Dec. 7, 2018

Jan. 2, 2019

$0.52

Regular Cash

Record Dates

Payable Dates

Amount

Type

March 10, 2017

April 3, 2017

$0.51

Regular Cash

May 12, 2017

June 5, 2017

$0.51

Regular Cash

Aug. 11, 2017

Sept. 5, 2017

$0.51

Regular Cash

Dec. 8, 2017

Jan. 2, 2018

$0.51

Regular Cash

 

Record Dates

Payable Dates

Amount

Type

March 11, 2016

April 4, 2016

$0.50

Regular Cash

May 13, 2016

June 6, 2016

$0.50

Regular Cash

Aug. 12, 2016

Sep. 6, 2016

$0.50

Regular Cash

Dec. 9, 2016

Jan. 3, 2017

$0.50

Regular Cash

Record Dates

Payable Dates

Amount

Type

March 13, 2015

April 6, 2015

$0.490

Regular Cash

May 8, 2015

June 1, 2015

$0.490

Regular Cash

Aug. 7, 2015

Sep. 8, 2015

$0.490

Regular Cash

Dec. 4, 2015

Jan. 4, 2016

$0.490

Regular Cash

 

Can you estimate the expected dividend in 2019? And in 2020? And on and on…

image080.jpg

 

Can you write down the math equation now?

WMT stock price = ?

 

Can you calculate now? It is hard right because we assume dividend payment goes to infinity. How can we simplify the calculation?

 

We can assume that dividend grows at certain rate, just as the table on the right shows.

Discount rate is r (based on Beta and CAPM learned in chapter 6)

 

 

 

 

Equations:

    Po= D1/(r-g) or Po= Do*(1+g)/(r-g)

     R = D1/Po+g = Do*(1+g)/Po+g

     D1=Do*(1+g); D2= D1*(1+g)…

 

 
Dividend growth model Calculator  
(FYI)

www.jufinance.com/stock

 

 

 

Chapter 8 Study Guide

Imagine you bought 100 shares of Wal-Mart (Ticker: WMT) a year ago.

 

1.      How is your holding period return in the prior year?

Price in Dec 3rd of 2014 was $84.94 and price of Dec 3rd of 2015 is $58.78.

 

2.      The followings are from google/finance about WMT.