FIN 509 & FIN510 Class Web Page, Spring'21

The Syllabus

  

Weekly SCHEDULE, LINKS, FILES and Questions

Week

Coverage, HW, Supplements

-        Required

Equations and Assignments

 

Weekly Tuesday class url: https://us.bbcollab.com/guest/00e1ca8ce6d94351b139f8373ba5af5e

 

Weekly Saturday Q&A (6-7pm) url: https://us.bbcollab.com/guest/aad01813aed3462cb5009123ab2b89cf

 

 

Class Schedule:

 

 

 

Topic and Activities,

class video web links

Assignments and Key Due Dates

Week 1

3/23 at 6 pm #117

Time value of money, chapter 5

Class video link

Discussion Board on market watch game, due by Sunday 11:59 pm (3/28/2021)

 

Week 2

3/30 at 6 pm #117

 

Discounted Cash Flow Valuation, chapter 6

 

Class video link

 

 

Discussion Board on Negative Interest Rate due by Sunday 11:59 pm (4/4/2021)

 

Quiz 1, due by Sunday (4/4) 11:59 pm, start from Thursday at 1 AM (on blackboard in week2 folder)

 

Homework of chapters 5, 6

due by 4/11/2021

 

Week 3

4/6 at 6 pm #117

 

Interest Rates and Bond Valuation, chapter 7

 

Class video link

 

 

Discussion Board on market watch game due by Sunday 11:59 pm (4/11)

 

Quiz 2, due by Sunday (4/11) 11:59 pm, start from Friday at 1 AM (on blackboard in week3 folder)

 

Homework of chapter 7 due by 4/11/2021

 

Week 4

4/13 at 6 pm #117

 

 

Stock valuation, chapter 8

 

Class video link

 

Discussion Board on bilateral vs. multilateral trading system (4/18)

 

Quiz 3, due by Sunday (4/18) 11:59 pm, start from Friday at 1 AM (on blackboard in week4 folder)

 

Homework of chapter 8 due by 5/6/2021

 

Week 5

4/20 at 6 pm #117

 

Capital Budgeting, WACC, chapters 9, 14

 

Class video link

 

Discussion Board on bitcoin frenzy (4/25)

 

Quiz 4, due by Sunday (4/25) 11:59 pm, start from Friday at 1 AM (on blackboard in week5 folder)

 

 

Homework of chapter 9 due by 5/6/2021

 

Week 6

4/27 at 6 pm #117

 

Chapter 13, risk and return

 

Class video link

Discussion Board on market watch game (5/2)

 

Quiz 5, due by Sunday (5/2) 11:59 pm, start from Friday at 1 AM (on blackboard in week6 folder)

 

 

Homework of chapter 13 due by 5/6/2021

 

Week 7

And Week 7 1/2

Review and Final

Video

        on 5/6/2021 at 1 AM, on blackboard final folder, due by Sunday (5/9/2021) 11:59 pm

       52 multiple choice questions

       Final prep video (on youtube)

       Quizzes 1-5 answers posted on blackboard course introduction folder

 

 

 

Week 0

Market Watch Game 

  Use the information and directions below to join the game.

1.     URL for your game: 
https://www.marketwatch.com/game/fin509-21-spring

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!

 

Pre-class assignment:

Set up marketwatch.com account and have fun

Week1,2



 

Chapter 5 Time value of money 1

Week 1 in class exercise (word file)   Solution

 

Chapter 5 ppt calculator

Chapter 5 ppt formula

 

Concept of FV, PV, Rate, Nper

Calculation of FV, PV, Rate, Nper

Concept of interest rate, compounding rate, discount rate

 

image001.jpg

 

 

Chapter 6 Time Value of Money 2

 

Chapter 6 PPT calculator

Chapter 6 ppt formula

 

Concept of PMT, NPV

Calculation of FV, PV, Rate, Nper, PMT, NPV, NFV

Concept of EAR, APR

Calculation of EAR, APR

 

 

Discussion Board (post your writing on blackboard under discussion):

Week 1 (due by Sunday at 11:59 pm)

 Market Watch Game

Let's start trading in the stock market! Please join a game and report back on your experience.

Directions

1.       URL for your game: 
https://www.marketwatch.com/game/fin509-21-spring

2.       Password for this private game: havefun.

3.       Click on the Join Now button to get started.

4.       Register for a new account with your email address or sign in if you already have an account.


Discussion Board Prompts

1.       Why did you choose the stock? How much money did you think you would make? Please explain.

2.       Did you make money or lose money off of your chosen stock? Which factors contributed to that? 

3.       What did you learn from this experience and how will it affect your choices in real life when choosing stocks?

Instructions

         Responses should be 100 to 250 words in length and should answer all three prompts

         Optional: reply to one of your peers with meaningful, thought-provoking responses

         Due by Sunday at 11:59 p.m. ET

 

 

 

HOMEWORK of Chapters 5 and 6 (due on_4/11/2021) 

1. The Thailand Co. is considering the purchase of some new equipment. The quote consists of a quarterly payment of $4,740 for 10 years at 6.5 percent interest. What is the purchase price of the equipment? ($138,617.88)

 

2. The condominium at the beach that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment? ($2,291.89)

3. 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)

 

4. Shannon wants to have $10,000 in an investment account three years from now. The account will pay 0.4 percent interest per month. If Shannon saves money every month, starting one month from now, how much will she have to save each month? ($258.81)

5. 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%)

6. 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%)

7. 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%)

8. 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)


9.  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)

10. 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)

11. 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)

12. 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)

13. 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)

(Hint: Bridgets is an annuity due, so abs(fv(8%/12, 10*12, 150, 0, 1)) --- type =1; Jordans is an ordinary annuity, so abs(fv(8%/12, 10*12, 150, 0) --- type =0, or omitted. There is a mistake in the help video for this question. Sorry for the mistake.)


14. What is the future value of weekly payments of $25 for six years at 10 percent? ($10,673.90)


15. At the end of this month, Bryan will start saving $80 a month for retirement through his company's retirement plan. His employer will contribute an additional $.25 for every $1.00 that Bryan saves. If he is employed by this firm for 25 more years and earns an average of 11 percent on his retirement savings, how much will Bryan have in his retirement account 25 years from now? ($157,613.33)

 

16. Sky Investments offers an annuity due with semi-annual payments for 10 years at 7 percent interest. The annuity costs $90,000 today. What is the amount of each annuity payment? ($6,118.35)


17. Mr. Jones just won a lottery prize that will pay him $5,000 a year for thirty years. He will receive the first payment today. If Mr. Jones can earn 5.5 percent on his money, what are his winnings worth to him today? ($76,665.51)

 

18. You want to save $75 a month for the next 15 years and hope to earn an average rate of return of 14 percent. How much more will you have at the end of the 15 years if you invest your money at the beginning of each month rather than the end of each month? ($530.06)

 

19. What is the effective annual rate of 10.5 percent compounded semi-annually? (10.78%) 

20. What is the effective annual rate of 9 percent compounded quarterly? (9.31%)

21. Fancy Interiors offers credit to customers at a rate of 1.65 percent per month. What is the effective annual rate of this credit offer? (21.70%)

 

22. What is the effective annual rate of 12.75 percent compounded daily? (13.60 percent)

 

23. Your grandparents loaned you money at 0.5 percent interest per month. The APR on this loan is _____ percent and the EAR is _____ percent. (6.00; 6.17)

24. Three years ago, you took out a loan for $9,000. Over those three years, you paid equal monthly payments totaling $11,826. What was the APR on your loan? (18.69%)

 

 

FYI only: help for homework

Part 1(Qs 1-2) Part 2(Qs 4-8) Part 3(Qs 9-12)

Part 4(Qs 13-16) Part 5(Qs 17-20) Part 6(Qs 21-24)

(Q13: Bridgets is an annuity due, so abs(fv(8%/12, 10*12, 150, 0, 1)) --- type =1; Jordans is an ordinary annuity, so abs(fv(8%/12, 10*12, 150, 0) --- type =0, or omitted. There is a mistake in the help video for this question. Sorry for the mistake.)

 

Quiz 1- Help Videos

Part I Part II Part III

 

Calculators


NPV calculator
 

 

NFV calculator

 

Time Value of Money Calculator 

 

2002 - 2019 by Mark A. Lane, Ph.D.

 

 

Math Formula

FV = PV *(1+r)^n

PV = FV / ((1+r)^n)

N = ln(FV/PV) / ln(1+r)

Rate = (FV/PV)1/n -1

Annuity:

N = ln(FV/C*r+1)/(ln(1+r))

Or

N = ln(1/(1-(PV/C)*r)))/ (ln(1+r))

 

image001.jpg

 

 

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

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

 

 

 

Excel Formulas 

To get FV, use FV function.    

 =abs(fv(rate, nper, pmt, pv))

 

To get PV, use PV function         

 = abs(pv(rate, nper, pmt, fv))

 

To get r, use rate function             

= rate(nper,  pmt, pv, -fv)

 

To get number of years, use nper function                                

 = nper(rate,  pmt, pv, -fv)

 

To get annuity payment, use PMT function                                          

 = abs(pmt(rate, nperpv, -fv))

 

To get Effective rate (EAR), use Effect function                            

 = effect(nominal_ratenpery)

 

To get annual percentage rate (APR), use nominal function      

APR = nominal(effective rate,  npery)

 

 

Week3

Chapter 7 Bond Pricing

 

Ppt

 

 

Simplified Balance Sheet of WalMart

 

In Millions of USD 

As of 2020-01-31

Total Assets

236,495,000

Total Current Liabilities

16,203,000

Long Term Debt

64,192,000

Total Liabilities

154,943,000

Total Equity

81,552,000

Total Liabilities & Shareholders' Equity

236,495,000

https://www.wsj.com/market-data/quotes/WMT/financials/annual/balance-sheet

 

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?

 

image004.jpg 

 

How Bonds Work (video)

Investing Basics: Bonds(video)

 

FINRA Bond market information

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

 

WAL-MART STORES INC

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104227&symbol=WMT.GP

 

Coupon Rate

7.550

%

Maturity Date

02/15/2030

Symbol

WMT.GP

CUSIP

931142BF9

Next Call Date

Callable

Last Trade Price

$150.75

Last Trade Yield

1.498%

Last Trade Date

02/12/2021

US Treasury Yield

 

 

Trade History

Credit and Rating Elements

Moody's Rating

Aa2 (5/9//2018)

Standard & Poor's Rating

AA (02/10/2000)

TRACE Grade

Investment Grade

Default

Bankruptcy

N

Insurance

Mortgage Insurer

Pre-Refunded/Escrowed

Additional Description

Senior Unsecured Note

Classification Elements

Bond Type

US Corporate Debentures

Debt Type

Senior Unsecured Note

Industry Group

Industrial

Industry Sub Group

Retail

Sub-Product Asset

CORP

Sub-Product Asset Type

Corporate Bond

State

Use of Proceeds

Security Code

Special Characteristics

Medium Term Note

N

Issue Elements

*dollar amount in thousands

Offering Date

02/09/2000

Dated Date

02/15/2000

First Coupon Date

08/15/2000

Original Offering*

$1,000,000.00

Amount Outstanding*

$1,000,000.00

Series

Issue Description

Project Name

Payment Frequency

Semi-Annual

Day Count

30/360

Form

Book Entry

Depository/Registration

Depository Trust Company

Security Level

Senior

Collateral Pledge

Capital Purpose

Bond Elements

*dollar amount in thousands

Original Maturity Size*

1,000,000.00

Amount Outstanding Size*

1,000,000.00

Yield at Offering

7.56%

Price at Offering

$99.84

Coupon Type

Fixed

Escrow Type


 

For class discussion:

Interest rates are low. So, shall you invest in short term bond or long term bond?

In class exercise:      

 

1.      Find bonds sponsored by WMT

         just go to www.finra.org Investor center  market data  bond  corporate bond

         Search for Walmart bonds

 

For discussion:

         What are the ratings of the WMT bonds? How does the rating agency rate a bond? Altman Z Score video

         Why some WMT bonds are priced higher than the par value, while others are priced at a discount?

         Why some WMT bonds have higher coupon rates than other bonds? How does WMT determine the coupon rates?

         Why some WMT bonds have higher yields than other bonds? Does a bonds yield change daily?

         Which of the WMT bonds are the most attractive one to you? Why?

 

http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C610043&symbol=WMT4117477

 

 

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 4%, 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

 

Bond Calculator (www.jufinance.com/bond)

 

For example, when the annual coupon bond is selling for $1,100, what is its return to investors?

 

For example, when the semi-annual coupon bond is selling for $1,100, 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 bonds 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 WMTs rating?

c.       Is the rating for WMT the highest?

d.      Who earned the highest rating?

 

 

Supplement: Municipal Bond

image051.jpg

https://emma.msrb.org/

 

For class discussion:

        Shall you invest in municipal bonds?

        Are municipal bonds better than investment grade bonds?

 

 

The risks investing in a bond

        Bond investing: credit Risk (video)

        Bond investing: Interest rate risk (video)

        Bond investing: increased risk (video)

 

 

 

Market data website:

1.   FINRA

      http://finra-markets.morningstar.com/BondCenter/Default.jsp (FINRA bond market data)

2.      WSJ

Market watch on Wall Street Journal has daily yield curve and bond yield information. 

http://www.marketwatch.com/tools/pftools/

http://www.youtube.com/watch?v=yph8TRldW6k

3.      Bond Online

http://www.bondsonline.com/Todays_Market/

 

 

 

Homework ( due on_4/11/2021)

 

1.  Firm AAAs bonds price = $850.  Coupon rate is 5% and par is $1,000. The bond has six years to maturity. Calculate for current yield? (5.88%)

2. For a zero coupon bond, use the following information to calculate its yield to maturity. (14.35%) Years left to maturity = 10 years. Price = $250. 

3.  For a zero coupon bond, use the following information to calculate its price. ($456.39) Years left to maturity = 10 years. Yield = 8%.

4.  Imagine that an annual coupon bonds coupon rate = 5%, 15 years left. Draw price-yield profile. (hint: Change interest rate, calculate new price and draw the graph). 

5. IBM 5 year 2% annual coupon bond is selling for $950. How much this IBM bonds YTM?  3.09%

6.  IBM 10 year 4% semi-annual coupon bond is selling for $950. How much is this IBM bonds YTM?  4.63%

7. IBM 10 year 5% annual coupon bond offers 8% of return. How much is the price of this bond?   798.7

8. IBM 5 year 5% semi-annual coupon bond offers 8% of return. How much is the price of this bond?  $878.34

9.  IBM 20 year zero coupon bond offers 8% return. How much is the price of this bond? 208.29

10.   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? (8.90%)

11.  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?

($895.43)

12.  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)

13.  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 yield to maturity?  (6.29%)

14.   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%)

 

Videos --- homework help (due by 4/11/2021)

Part I Q1-Q2 Q3-Q4 Q5-Q8 Q9-Q14

 

 

Quiz 2- Help Video (Quiz 2 Due by 4/11/2021)

 

 

 

Bond Calculator

www.jufinance.com/bond

 

 

 

Bond Pricing Formula (FYI)

 

image033.jpg

 

 

 

image035.jpg

 

 

image036.jpg

 

 

image037.jpg

 

image038.jpg

 

 

 

 

Bond Pricing Excel Formula

 

Summary of bond pricing excel functions

To calculate bond price (annual coupon bond):

Price=abs(pv(yield to maturity, years left to maturity, coupon rate*1000, 1000)

 

To calculate yield to maturity (annual coupon bond)::

Yield to maturity = rate(years left to maturity, coupon rate *1000, -price, 1000)

 

To calculate bond price (semi-annual coupon bond):

Price=abs(pv(yield to maturity/2, years left to maturity*2, coupon rate*1000/2, 1000)

 

To calculate yield to maturity (semi-annual coupon bond):

Yield to maturity = rate(years left to maturity*2, coupon rate *1000/2, -price, 1000)*2

 

To calculate number of years left(annual coupon bond)

Number of years =nper(yield to maturity,  coupon rate*1000, -price, 1000)

 

To calculate number of years left(semi-annual coupon bond)

Number of years =nper(yield to maturity/2,  coupon rate*1000/2, -price, 1000)/2

 

To calculate coupon (annual coupon bond)

Coupon = pmt(yield to maturity, number of years left, -price, 1000)

Coupon rate = coupon / 1000

 

To calculate coupon (semi-annual coupon bond)

Coupon = pmt(yield to maturity/2, number of years left*2, -price, 1000)*2

Coupon rate = coupon / 1000

 

 

Low interest on Walmart bonds not worthy of investment (FYI)

MONEY & INVESTING

June 28, 2018

ericBRETAN

estaterick@gmail.com

https://naples.floridaweekly.com/articles/low-interest-on-walmart-bonds-not-worthy-of-investment/

 

What do you do if you need a few extra bucks and dont have the money? If it is a small purchase, you may put it on your credit card. If it is something larger, you may have to go to the bank and get a loan. But what if you are a business and need more than a few extra bucks? What if you need $16 billion what do you do then? Walmart recently faced this problem after its acquisition of the Indian E-commerce company Flipkart Group. The solution was to issue corporate bonds to the public in return for the cash needed to fund the purchase. But just what are corporate bonds, how are they priced and issued, and are they a good investment?

 

A bond is simply an investment where the investor loans money to a borrower in exchange for a set interest rate for a given period of time. At the bonds maturity, the investor receives the principal back as well. For bonds issued by corporations, typically interest is paid every six months although some bonds pay quarterly or monthly interest payments. Corporations issue bonds that mature anywhere from less than a year (this debt is often called commercial paper) to 30 years or more. Large companies like Disney or Coca-Cola have even issued 100-year maturity bonds.

 

To issue a bond, a company typically will meet with a bank or investment bank to structure the investment. First, the parties will determine the size of the bond. If the company borrows too much, it may hurt its credit rating or have trouble making the interest payments. If it borrows too little, the borrower may not have the funds to maximize its growth or business opportunities. Second, the company and bank will determine the appropriate maturity for the bonds. Factors such as the use of the funds, overall interest rate environment, and credit worthiness of the borrower all will affect this decision.

 

Finally, the bank will price the bonds. Most bonds are issued at par meaning they are issued at the face value of the bond, often $1,000. The price of the bond is then the interest rate that the buyer of the bond will receive. For example, a company can issue a 10 year bond at par that is priced at an interest rate of 6.2 percent. The interest rate of a corporate bond is determined by two factors. The first is the overall rate environment, typically determined by U.S. government debt rates. The second is the credit worthiness of the issuer, which determines the additional interest that investors demand to hold the bonds over Treasury rates. This spread can be very small for well capitalized and stable companies like Microsoft or Apple or very large for risky biotech firms.

After the interest rate of the bonds is set, the investments are sold to the public at the face value of the bonds. Going forward, however, the bonds will trade on the open market and will either trade at a premium or discount to the face value. If overall interest rates go up or the credit worthiness of the company declines, the bonds value will decline as investors sell the bonds to buy more stable bonds or bonds with higher interest rates. Conversely, if interest rates decline or the company credit strengthens, the bonds value will rise as investors buy the bond.

In the case of Walmart, several maturities of bonds were offered to investors to fund the staggering $16 billion needed to fund its acquisition. The longest dated bonds, 30 years to maturity, were priced at just 1.05 percent over the 30 year Treasury rate or around 4.1 percent. This very low rate speaks very highly of the credit worthiness of Walmart. However, one of the main bond credit ratings companies, S&P, stated that the companys strong AA credit rating may be placed under review because of the significant acquisitions the company has recently made and the resulting debt issued to pay for them. Therefore, I would be hesitant to tie up my money for 30 years at such a low interest rate and feel that there are plenty of better investments to earn a better risk adjusted return.

 

Eric Bretan, the co- owner of Ricks Estate & Jewelry Buyers in Punta Gorda, was a senior derivatives marketer and investment banker for more than 15 years at several global banks.

 

 

Week 4

Chapter 8 Stock Valuation

 

ppt

 

Part I Dividend payout and Stock Valuation

 

For class discussion:

        Why can we use dividend to estimate a firms intrinsic value?

    Are future dividends predictable?

 

Fords dividends: https://www.nasdaq.com/market-activity/stocks/f/dividend-history

Ex/EFF DATE

TYPE

CASH AMOUNT

DECLARATION DATE

RECORD DATE

PAYMENT DATE

01/29/2020

CASH

$0.15

01/08/2020

01/30/2020

03/02/2020

10/21/2019

CASH

$0.15

10/10/2019

10/22/2019

12/02/2019

07/22/2019

CASH

$0.15

07/11/2019

07/23/2019

09/03/2019

04/23/2019

CASH

$0.15

04/08/2019

04/24/2019

06/03/2019

01/30/2019

CASH

$0.15

01/16/2019

01/31/2019

03/01/2019

10/22/2018

CASH

$0.15

10/11/2018

10/23/2018

12/03/2018

07/20/2018

CASH

$0.15

07/12/2018

07/23/2018

09/04/2018

04/19/2018

CASH

$0.15

04/10/2018

04/20/2018

06/01/2018

01/29/2018

CASH

$0.28

01/16/2018

01/30/2018

03/01/2018

10/20/2017

CASH

$0.15

10/12/2017

10/23/2017

12/01/2017

07/20/2017

CASH

$0.15

07/14/2017

07/24/2017

09/01/2017

04/18/2017

CASH

$0.15

04/10/2017

04/20/2017

06/01/2017

01/18/2017

CASH

$0.20

01/11/2017

01/20/2017

03/01/2017

10/25/2016

CASH

$0.15

10/13/2016

10/27/2016

12/01/2016

07/26/2016

CASH

$0.15

07/14/2016

07/28/2016

09/01/2016

 

    Refer to the following table for Wal-mart (WMTs dividend history)

 

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

 

 

image041.jpg

 

Record Dates

Payable Dates

Amount

Type

March 20, 2020

April 6, 2020

$0.54

Regular Cash

May 8, 2020

June 1, 2020

$0.54

Regular Cash

Aug. 14, 2020

Sept. 8, 2020

$0.54

Regular Cash

Dec. 11, 2020

Jan. 4, 2021

$0.54

Regular Cash

Record Dates

Payable Dates

Amount

Type

March 15, 2019

April 1, 2019

$0.53

Regular Cash

May 10, 2019

June 3, 2019

$0.53

Regular Cash

Aug. 9, 2019

Sept. 3, 2019

$0.53

Regular Cash

Dec. 6, 2019

Jan. 2, 2020

$0.53

Regular Cash

 

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

Stock Splits

Wal-Mart Stores, Inc. was incorporated on Oct. 31, 1969. On Oct. 1, 1970, Walmart offered 300,000 shares of its common stock to the public at a price of $16.50 per share. Since that time, we have had 11 two-for-one (2:1) stock splits. On a purchase of 100 shares at $16.50 per share on our first offering, the number of shares has grown as follows:

2:1 Stock Splits

Shares

Cost per Share

Market Price on Split Date

Record Date

Distributed

On the Offering

100

$16.50

May 1971

200

$8.25

$47.00

5/19/71

6/11/71

March 1972

400

$4.125

$47.50

3/22/72

4/5/72

August 1975

800

$2.0625

$23.00

8/19/75

8/22/75

Nov. 1980

1,600

$1.03125

$50.00

11/25/80

12/16/80

June 1982

3,200

$0.515625

$49.875

6/21/82

7/9/82

June 1983

6,400

$0.257813

$81.625

6/20/83

7/8/83

Sept. 1985

12,800

$0.128906

$49.75

9/3/85

10/4/85

June 1987

25,600

$0.064453

$66.625

6/19/87

7/10/87

June 1990

51,200

$0.032227

$62.50

6/15/90

7/6/90

Feb. 1993

102,400

$0.016113

$63.625

2/2/93

2/25/93

March 1999

204,800

$0.008057

$89.75

3/19/99

4/19/99

 

 

Can you estimate the expected dividend in 2022? And in 2023? And on and on

image044.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 that we will learn in chapter 13)

 

From finance.yahoo.com

 

image053.jpg

 

What does each item indicate?

 

From finviz.com   https://finviz.com/quote.ashx?t=WMT

 

image046.jpg

 

image045.jpg

 

 

Part II: Constant Dividend Growth-Dividend growth model

Calculate stock prices

1)      Given next dividends and price expected to be sold for

Po= https://www.jufinance.com/fin509_19s/index_files/image013.gif 

Po= https://www.jufinance.com/fin509_19s/index_files/image015.gif +https://www.jufinance.com/fin509_19s/index_files/image017.gif

Po= https://www.jufinance.com/fin509_19s/index_files/image015.gif +https://www.jufinance.com/fin509_19s/index_files/image019.gif +https://www.jufinance.com/fin509_19s/index_files/image021.gif

Po= https://www.jufinance.com/fin509_19s/index_files/image015.gif +https://www.jufinance.com/fin509_19s/index_files/image019.gif +https://www.jufinance.com/fin509_19s/index_files/image023.gif+https://www.jufinance.com/fin509_19s/index_files/image025.gif

image086.jpg

Refer to http://www.calculatinginvestor.com/2011/05/18/gordon-growth-model/

 

        Now lets apply this Dividend growth model in problem solving.

 

Constant dividend growth model calculator  (www.jufinance.com/stock)

 

Equations

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

 

         r = D1/Po+g = Do*(1+g)/Po+g; So r = total return = dividend yield + capital gain yield

 

         g= r-D1/Po = r- Do*(1+g)/Po

          

         Capital Gain yield = g = (P1-Po)/Po; P1: Stock price one year later (P1=D2/(r-g))

          

         Dividend Yield = r g = D1 / Po = Do*(1+g) / Po

 

         D1=Do*(1+g); D2= D1*(1+g); D3=D2*(1+g)

 

Exercise:

1.      Consider the valuation of a common stock that paid $1.00 dividend at the end of the last year and is expected to pay a cash dividend in the future. Dividends are expected to grow at 10% and the investors required rate of return is 17%. How much is the price? How much is the dividend yield? Capital gain yield?

2.      The current market price of stock is $90 and the stock pays dividend of $3 with a growth rate of 5%. What is the return of this stock? How much is the dividend yield? Capital gain yield?

 

 

Part III: Non-Constant Dividend Growth

Calculate stock prices

1)      Given next dividends and price expected to be sold for

Po= https://www.jufinance.com/fin509_19s/index_files/image013.gif 

Po= https://www.jufinance.com/fin509_19s/index_files/image015.gif +https://www.jufinance.com/fin509_19s/index_files/image017.gif

Po= https://www.jufinance.com/fin509_19s/index_files/image015.gif +https://www.jufinance.com/fin509_19s/index_files/image019.gif +https://www.jufinance.com/fin509_19s/index_files/image021.gif

Po= https://www.jufinance.com/fin509_19s/index_files/image015.gif +https://www.jufinance.com/fin509_19s/index_files/image019.gif +https://www.jufinance.com/fin509_19s/index_files/image023.gif+https://www.jufinance.com/fin509_19s/index_files/image025.gif

 

Non-constant dividend growth model calculator (https://www.jufinance.com/dcf/)

Equations

Pn = Dn+1/(r-g) = Dn*(1+g)/(r-g), since year n, dividends start to grow at a constant rate.

Where Dn+1= next dividend in year n+1;

Do = just paid dividend in year n;

r=stock return; g= dividend growth rate;

Pn= current market price in year n;

 

Po = npv(r, D1, D2, , Dn+Pn)

Or,

Po = D1/(1+r) + D2/(1+r)2 + + (Dn+Pn)/(1+r)n

 

In class exercise for non-constant dividend growth model

 

1.      You expect AAA Corporation to generate the following free cash flows over the next five years:

 

Year

1

2

3

4

5

FCF ($ millions)

75

84

96

111

120

 

Since year 6, you estimate that AAA's free cash flows will grow at 6% per year. WACC of AAA = 15%

         Calculate the enterprise value for DM Corporation.

         Assume that AAA has $500 million debt and 14 million shares outstanding, calculate its stock price.

 

Answer:

FCF grows at 6% ==> could use dividend constant growth model to get the value at year 5

Value in year five = FCF in year 6 /(WACC - g)

FCF in year 6 = FCF in year 5 *(1+g%), g=6%

FCF in year 6 = 120 *(1+6%)

value in year five = 120*(1+6%)/(15%-6%) = 1433.13

value in year 0 (current value) =1017.66 = npv(15%, 75, 84, 96, 111, 120+1433.13)

Note: Po = D1/(r-g) ==> Firm value = FCF1/(WACC-g) = FCFo *(1+g)/(WACC-g)

Assume that AAA has $500 million debt and 14 million shares outstanding, calculate its stock price.

equity value = 1017.66 - 500 = 517.66 millions

stock price = 517.66 / 14

 

2. AAA pays no dividend currently. However, you expect it pay an annual dividend of $0.56/share 2 years from now with a growth rate of 4% per year thereafter. Its equity cost = 12%, then its stock price=?

Answer:

Do=0

D1=0

D2=0.56

g=4% after year 2 P2 = D3/(r-g), D3=D2*(1+4%) P2 = 0.56*(1+4%)/(12%-4%) = 7.28

r=12%

Po=? Po = NPV(12%, D1, D2+P2), D2 = 0.56, P2=7.28. SO Po = NPV(12%, 0,0.56+7.28) = 6.25

 

(Note: for non-constant growth model, calculate price when dividends start to grow at the constant rate. Then use NPV function using dividends in previous years, last dividend plus price. Or use calculator at https://www.jufinance.com/dcf/ )

 

 

3. Required return =12%. Do = $1.00, and the dividend will grow by 30% per year for the next 4 years. After t = 4, the dividend is expected to grow at a constant rate of 6.34% per year forever. What is the stock price ($40)?

Answer:

Do=1

D1 = 1*(1+30%) = 1.3

D2= 1.3*(1+30%) = 1.69

D3 = 1.69*(1+30%) = 2.197

D4 = 2.197*(1+30%) = 2.8561

D5 = 2.8561*(1+6.34%), g=6.34%

P4 = D5/(r-g) = 2.8561*(1+6.34%) /(12% - 6.34%)

Po = NPV(12%, 1.3, 1.69, 2.197, 2.8661+2.8561*(1+6.34%)) /(12% - 6.34%)) = 40

 

Or use calculator at https://www.jufinance.com/dcf/

 

Part IV: How to pick stocks? (FYI)

How to pick stocks  Does it work?

PE ratio; PEG ratio (peg ratio vs. PE ratio  video)

 

Stock screening tools

         Reuters stock screener to help select stocks

http://stockscreener.us.reuters.com/Stock/US/

 

         FINVIZ.com

http://finviz.com/screener.ashx

use screener on finviz.com to narrow down your choices of stocks, such as PE<15, PEG<1, ROE>30%

 

 

         WSJ stock screen

http://online.wsj.com/public/quotes/stock_screener.html

 

         Simply the Web's Best Financial Charts

 Stock charts

 

 

MSN Money

You can find analyst rating from MSN money

For instance,

ANALYSTS RATINGS

Zacks average brokerage recommendation is Moderate Buy

RECOMMENDATIONS

CURRENT

1 MONTH AGO

2 MONTHS AGO

3 MONTHS AGO

Strong Buy

26

26

25

24

Moderate Buy

4

4

4

4

Hold

8

8

8

9

Moderate Sell

0

0

0

0

Strong Sell

0

0

0

0

Mean Rec.

1.51

1.51

1.53

1.58

 

 

 

Summary of stock screening rules from class discussion

PEG<1

PE<15  (? FBs PE>100?)

Growth rate<20

ROE>10%

Analyst ranking: strong buy only

Zacks average =1 (from Ranking stocks using PEG ratio)

current price>5

 

 

  How to pick stocks

Capital Asset Pricing Model (CAPM)Explained

http://www.youtube.com/watch?v=JApBhv3VLTo

 

Ranking stocks using PEG ratio

http://www.youtube.com/watch?v=bekW_hTehNU

 

 

 

 

HOMEWORK (Due with final)

1.      Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return? (14.60 percent)

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? ($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? ($3.3)

4.      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? (10%)

5.     Investors of Creamy Custard common stock earns 15% of return. It just paid a dividend of $6.00 and dividends are expected to grow at a rate of 6% indefinitely. What is expected price of Creamy Custard's stock? ($70.67)

 

 

Homework Video of this week  

  

Homework help video

 

Quiz 3- Help Video

Part I Part II Part III Part IV

 

 

 

 

 

 

 

 

 

 

 

 

 

P/E Ratio Summary by industry (FYI) --- Thanks to Dr Damodaran

 

Data Used: Multiple data services

Date of Analysis: Data used is as of January 2021

Download as an excel file insteadhttp://www.stern.nyu.edu/~adamodar/pc/datasets/pedata.xls

For global datasetshttp://www.stern.nyu.edu/~adamodar/New_Home_Page/data.html

 


Industry Name

Number of firms

Current PE

Expected growth - next 5 years

PEG Ratio

Advertising

61

20.95

83.44%

0.19

Aerospace/Defense

72

291.56

5.78%

3.55

Air Transport

17

8.14

-14.27%

NA

Apparel

51

22.38

13.60%

1.63

Auto & Truck

19

164.37

18.80%

8.87

Auto Parts

52

27.43

12.42%

2.92

Bank (Money Center)

7

8.46

5.27%

2.83

Banks (Regional)

598

13.5

5.74%

2.32

Beverage (Alcoholic)

23

45.64

17.53%

2.06

Beverage (Soft)

41

201.34

10.24%

2.93

Broadcasting

29

15.1

12.93%

0.96

Brokerage & Investment Banking

39

21.14

8.88%

1.81

Building Materials

42

28.19

15.28%

1.43

Business & Consumer Services

169

38.25

12.28%

3.28

Cable TV

13

68.46

29.41%

1.04

Chemical (Basic)

48

13.8

9.70%

1.79

Chemical (Diversified)

5

13.89

5.55%

2.35

Chemical (Specialty)

97

36.06

9.18%

3.4

Coal & Related Energy

29

2.85

-20.90%

NA

Computer Services

116

45.38

9.98%

1.86

Computers/Peripherals

52

40.61

12.30%

2.97

Construction Supplies

46

84.99

11.21%

2.27

Diversified

29

26.18

9.58%

1.86

Drugs (Biotechnology)

547

31

18.96%

1.14

Drugs (Pharmaceutical)

287

122.82

11.28%

2.09

Education

38

26.92

14.76%

1.75

Electrical Equipment

122

51.61

1.85%

15.93

Electronics (Consumer & Office)

22

57.06

20.95%

0.66

Electronics (General)

157

81.09

15.15%

2.72

Engineering/Construction

61

27.42

11.33%

2.38

Entertainment

118

908.12

17.03%

3.18

Environmental & Waste Services

86

538.13

11.58%

3.72

Farming/Agriculture

32

26.45

17.84%

1.38

Financial Svcs. (Non-bank & Insurance)

235

24.3

13.59%

1.08

Food Processing

101

268.11

13.87%

1.54

Food Wholesalers

18

320.61

11.97%

0.71

Furn/Home Furnishings