FIN301 Class Web Page, Summer' 19
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


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 FYI: MarketWatch Stock
Game written by Maelyn O’Connor (Thanks, Maelyn) Chapter 1: Introduction 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 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
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 Time
value of money (Video) The
time value of money  German Nande (video)
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 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 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 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) 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)^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 rate, npery) Calculators
(FYI) 

Chapter 6 Risk and Return 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? How to understand the following graph?
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?
(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
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
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)) Two Stock
Portfolio Calculator


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. 


********* 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 
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.
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)
Exercise:
Prepare the cash flow statement based on the above information
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).
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 
LongTerm Debt to Equity 
35.34 
LongTerm Debt to Total Capital 
25.46 
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 
LongTerm Debt to Equity 
43.54 
LongTerm Debt to Total Capital 
30.33 
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
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?
Investing
Basics: Bonds(video)
FINRA – Bond market information
http://finramarkets.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.org, è Investor
center è market data è bond è corporate
bond
Corporate Bond
Issuer Name 
Symbol 
Callable 
SubProduct Type 
Coupon 
Maturity 
Moody's® 
S&P 
Price 
Yield 
WMT.GP 
Corporate Bond 
7.55 
02/15/2030 
Aa2 
AA 
142.426 
2.905 

WMT.GG 
Corporate Bond 
6.75 
10/15/2023 
Aa2 
AA 
118.81 
2.219 

WMT.HV 
Corporate Bond 
5.25 
9/01/2035 
Aa2 
AA 
124.975 
3.257 

WMT.IA 
Corporate Bond 
5.875 
4/05/2027 
Aa2 
AA 
122.533 
2.668 

WMT.IC 
no 
Corporate Bond 
6.5 
08/15/2037 
Aa2 
AA 
139.878 
3.514 

WMT.IE 
No 
Corporate Bond 
6.2 
04/15/2038 
Aa2 
AA 
136.429 
3.537 

WMT.IJ 
Corporate Bond 
5.625 
4/01/2040 
Aa2 
AA 
129.89 
3.577 

WMT.AB 
No 
Corporate Bond 
5.625 
04/15/2041 
Aa2 
AA 
131.722 
3.53 

WMT4117477 
Yes 
Corporate Bond 
3.3 
04/22/2024 
Aa2 
AA 
103.758 
2.437 

WMT4117478 
Yes 
Corporate Bond 
4.3 
04/22/2044 
Aa2 
AA 
110.812 
3.628 

WMT3991377 
Yes 
Corporate Bond 
4 
4/11/2043 
Aa2 
AA 
106.786 
3.569 

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, 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. (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% 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 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 (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)
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 
4.250% 
05/15/2049 
A1/A 
102.79852 
101.65600 
102.76300 
0.783000 
4.089047 

INTERNATIONAL
BUSINESS MACHS CORP 
3.500% 
05/15/2029 
A1/A 
102.22000 
101.57200 
102.14700 
0.702000 
3.245560 

INTERNATIONAL
BUSINESS MACHS CORP 
3.300% 
05/15/2026 
A1/A 
101.47800 
100.85300 
101.44000 
0.505000 
3.068078 

INTERNATIONAL
BUSINESS MACHS CORP 
4.150% 
05/15/2039 
A1/A 
102.83900 
101.03900 
102.64300 
0.363000 
3.957019 

INTERNATIONAL
BUSINESS MACHS CORP 
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 
4.418% 
11/15/2035 
Baa1/BBB+ 
95.45700 
94.91200 
95.45700 
0.120000 
4.820977 

PETROLEOS
MEXICANOS 
6.750% 
09/21/2047 
Baa3/ 
93.50000 
89.50000 
93.12700 
2.127000 
7.327999 

SHERWINWILLIAMS
CO 
2.250% 
05/15/2020 
Baa3/BBB 
99.96500 
99.43000 
99.56300 
0.041000 
2.719676 

ABBVIE
INC 
2.500% 
05/14/2020 
Baa2/A 
100.17000 
99.30000 
99.30000 
0.550000 
3.257578 

SHELL
INTL FIN B V 
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 
3.150% 
10/01/2026 
Ba2/ 
79.29900 
73.75000 
76.50000 
0.125000 
7.355862 

PETROBRAS
GLOBAL FIN B V 
7.375% 
01/17/2027 
Ba2/ 
113.00000 
110.20000 
112.45000 
1.260000 
5.361652 

WEATHERFORD
INTL LTD 
9.875% 
02/15/2024 
Ca/ 
50.50000 
49.25000 
49.50000 
1.750000 
30.911975 

WEATHERFORD
INTL LTD 
8.250% 
06/15/2023 
Ca/ 
49.75000 
49.50000 
49.75000 
2.750000 
30.866940 

MALLINCKRODT
INTL FIN SA 
4.750% 
04/15/2023 
Caa1/B 
62.50100 
60.50000 
62.27000 
0.230000 
18.951083 

PETROBRAS
GLOBAL FIN B V 
6.900% 
03/19/2049 
Ba2/ 
101.35000 
99.75000 
100.35000 
0.350000 
6.871119 

TEVA
PHARMACEUTICAL FIN NETH III B V 
4.100% 
10/01/2046 
Ba2/ 
65.47200 
64.21900 
65.00000 
0.500000 
6.986865 

FRONTIER
COMMUNICATIONS CORP 
10.500% 
09/15/2022 
Caa1/CCC+ 
74.04000 
71.69900 
72.75000 
0.750000 
22.690025 

NEWMARK
GROUP INC 
6.125% 
11/15/2023 
/BB+ 
102.75600 
102.20000 
102.26800 
0.982000 
5.533062 

PACIFIC GAS & ELEC CO 
6.050% 
03/01/2034 
WR/D 
101.06250 
100.00000 
101.00000 
1.250000 
Chapter 8 Stock Valuation
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/stockinformation/dividendhistory/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…
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/(rg) or Po= Do*(1+g)/(rg)
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 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. The followings
are from google/finance about WMT.