FINANCE
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AssignmentDetails_10_24_2017.pdf
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Unit 3 - Individual Project
Assignment Details
Assignment Description
After engaging in a dialogue with your colleagues on valuation, you will now be given an opportunity to apply principles that were presented in this phase. Using a Web site
that provides current stock and bond pricing and yield information, complete and analyze the tables illustrated below. Your mentor suggests using a Web site similar to this
one.
To fill out the first table, you will need to select 3 bonds with maturities between 10 and 20 years with bond ratings of "A to AAA," "B to BBB" and "C to CC" (you may want
to use bond screener at the Web site linked above). All of these bonds will have these values (future values) of $1,000. You will need to use a coupon rate of the bond times
the face value to calculate the annual coupon payment. You should subtract the maturity date from the current year to determine the time to maturity. The Web site should
provide you with the yield to maturity and the current quote for the bond. (Be sure to multiply the bond quote by 10 to get the current market value.) You will then need to
indicate whether the bond is currently trading at a discount, premium, or par.
Bond Company/
Rating
Face
Value (FV)
Coupon
Rate
Annual
Payment
(PMT)
Time-to
Maturity
(NPER)
Yield-to-
Maturity
(RATE)
Market
Value
(Quote)
Discount,
Premium,
Par
A-Rated $1,000
B-Rated $1,000
C-Rated $1,000
Explain the relationship observed between ratings and yield to maturity.
Explain why the coupon rate and the yield to maturity determine why the bonds would trade at a discount, premium, or par.
In this step, you have been asked to visit a credible Web site that provides detailed information on publicly traded stocks and select 1 that has at least a 5-year history of
paying dividends and 2 of its closest competitors.
"To fill up the first table, you will need to gather information needed to calculate the required rate of return for each of the 3 stocks (use the Capital Asset Pricing model). You
will need to find the risk-free rate online. It is the 5-year Treasury rate. You will need the market return which is just the return on the S&P 500 Index, and it is available
online. You should use an average over 5 years (find the historical yearly returns for the S&P 500 Index and average them). You must research your stocks to find the betas.
You should be able to find them at finance.yahoo.com."
Company
5-year Risk-
Free Rate of
Return
Beta (ß) 5-Year Return
of S&P 500
Index
Required Rate of
Return (CAPM)
"To complete the next table, you will need the most recent dividends paid over the past year for each stock, next year's expected dividends, the expected growth rate of the
dividends (which you can calculate by taking next year's dividend subtracting off this year's dividend and dividing the result by this year's dividend), and the required rate of
return you calculated in the previous table. You will also need to compare your results with the current value of each stock and determine whether the model suggests that
they are over- or underpriced.
Company Current
Dividend
Projected Growth
Rate of Dividends
Next
year's
Dividend
Required Rate of
Return (CAPM)
Estimated Stock Price (Gordon Model) = Next year's dividend /
(required rate of return – projected growth rate of dividends)
Current
Stock
Price
Over/under
Priced
In the third table, you will be using the price to earnings ratio (P/E) along with the average expected earnings per share provided by the Web site. You will also need to
compare your results with the current value of each stock to determine whether or not the model suggests that the stocks are over- or underpriced.
Company
Estimated
Earning
(next year)
P/E Ratio
Estimated
Stock Price
(P/E)
Current
Stock Price
Over/Under
Priced
After completing the 3 tables, explain your findings and why your calculations coincide with the principles related to bonds that were presented in the Phase. Be sure to
address the following:
Explain the relationship observed between the required rate of return, growth rate and the dividend paid, and the estimated value of the stock using the Gordon Model.
Explain the value and weaknesses of the Gordon model.
Explain the how the price-to-earnings model is used to estimate the value of the stocks.
Note: You can find information about the top 500 stocks at this Web site.
References
S&P 500 index chart. (2014). Retrieved from the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?
s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
Be sure to document your paper with in-text citations, credible sources, and a list of references used in proper APA format.
Please submit your assignment.
For assistance with your assignment, please use your text, Web resources, and all course materials.
Reading Assignment
Self-Published Book, Chapters 4 and 5
Access the reading materials by reviewing the tab with the same name of the unit: http://careered.libguides.com/ctu/FINC400
Assignment Objectives
Apply the time value of money in making financial decisions.
Determine the relationship between risk and return by calculating stock and portfolio variance.
Apply valuation formulas to assess the value of stocks and bonds.
Use effective communication, team and problem-solving skills to collaborate on a project.
Other Information
There is no additional information to display at this time.
Legend
Extra Credit View Assignment Rubric
Assignment Overview
Type: Individual Project
Unit: Valuation of Financial Instruments
Due Date: Wed, 10/25/17
Grading Type: Numeric
Points Possible: 150
Points Earned: 0
Deliverable Length: Word document of 700–1,000 words with attached Excel Spreadsheet showing calculations
Go To:
Assignment Details
Scenario
Learning Materials
Reading Assignment
My Work:
Online Deliverables: Submissions
12:26 PM (CDT)
Privacy Policy Terms of Use About Our Ads © 2017 Colorado Technical University. All Rights Reserved. Authorized Users Only.
Unit 3 - Individual Project
Assignment Details
Assignment Description
After engaging in a dialogue with your colleagues on valuation, you will now be given an opportunity to apply principles that were presented in this phase. Using a Web site
that provides current stock and bond pricing and yield information, complete and analyze the tables illustrated below. Your mentor suggests using a Web site similar to this
one.
To fill out the first table, you will need to select 3 bonds with maturities between 10 and 20 years with bond ratings of "A to AAA," "B to BBB" and "C to CC" (you may want
to use bond screener at the Web site linked above). All of these bonds will have these values (future values) of $1,000. You will need to use a coupon rate of the bond times
the face value to calculate the annual coupon payment. You should subtract the maturity date from the current year to determine the time to maturity. The Web site should
provide you with the yield to maturity and the current quote for the bond. (Be sure to multiply the bond quote by 10 to get the current market value.) You will then need to
indicate whether the bond is currently trading at a discount, premium, or par.
Bond Company/
Rating
Face
Value (FV)
Coupon
Rate
Annual
Payment
(PMT)
Time-to
Maturity
(NPER)
Yield-to-
Maturity
(RATE)
Market
Value
(Quote)
Discount,
Premium,
Par
A-Rated $1,000
B-Rated $1,000
C-Rated $1,000
Explain the relationship observed between ratings and yield to maturity.
Explain why the coupon rate and the yield to maturity determine why the bonds would trade at a discount, premium, or par.
In this step, you have been asked to visit a credible Web site that provides detailed information on publicly traded stocks and select 1 that has at least a 5-year history of
paying dividends and 2 of its closest competitors.
"To fill up the first table, you will need to gather information needed to calculate the required rate of return for each of the 3 stocks (use the Capital Asset Pricing model). You
will need to find the risk-free rate online. It is the 5-year Treasury rate. You will need the market return which is just the return on the S&P 500 Index, and it is available
online. You should use an average over 5 years (find the historical yearly returns for the S&P 500 Index and average them). You must research your stocks to find the betas.
You should be able to find them at finance.yahoo.com."
Company
5-year Risk-
Free Rate of
Return
Beta (ß) 5-Year Return
of S&P 500
Index
Required Rate of
Return (CAPM)
"To complete the next table, you will need the most recent dividends paid over the past year for each stock, next year's expected dividends, the expected growth rate of the
dividends (which you can calculate by taking next year's dividend subtracting off this year's dividend and dividing the result by this year's dividend), and the required rate of
return you calculated in the previous table. You will also need to compare your results with the current value of each stock and determine whether the model suggests that
they are over- or underpriced.
Company Current
Dividend
Projected Growth
Rate of Dividends
Next
year's
Dividend
Required Rate of
Return (CAPM)
Estimated Stock Price (Gordon Model) = Next year's dividend /
(required rate of return – projected growth rate of dividends)
Current
Stock
Price
Over/under
Priced
In the third table, you will be using the price to earnings ratio (P/E) along with the average expected earnings per share provided by the Web site. You will also need to
compare your results with the current value of each stock to determine whether or not the model suggests that the stocks are over- or underpriced.
Company
Estimated
Earning
(next year)
P/E Ratio
Estimated
Stock Price
(P/E)
Current
Stock Price
Over/Under
Priced
After completing the 3 tables, explain your findings and why your calculations coincide with the principles related to bonds that were presented in the Phase. Be sure to
address the following:
Explain the relationship observed between the required rate of return, growth rate and the dividend paid, and the estimated value of the stock using the Gordon Model.
Explain the value and weaknesses of the Gordon model.
Explain the how the price-to-earnings model is used to estimate the value of the stocks.
Note: You can find information about the top 500 stocks at this Web site.
References
S&P 500 index chart. (2014). Retrieved from the Yahoo! Finance Web site: http://finance.yahoo.com/echarts?
s=%5egspc+interactive#symbol=^gspc;range=1y;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=;
Be sure to document your paper with in-text citations, credible sources, and a list of references used in proper APA format.
Please submit your assignment.
For assistance with your assignment, please use your text, Web resources, and all course materials.
Reading Assignment
Self-Published Book, Chapters 4 and 5
Access the reading materials by reviewing the tab with the same name of the unit: http://careered.libguides.com/ctu/FINC400
Assignment Objectives
Apply the time value of money in making financial decisions.
Determine the relationship between risk and return by calculating stock and portfolio variance.
Apply valuation formulas to assess the value of stocks and bonds.
Use effective communication, team and problem-solving skills to collaborate on a project.
Other Information
There is no additional information to display at this time.
Legend
Extra Credit View Assignment Rubric
Assignment Overview
Type: Individual Project
Unit: Valuation of Financial Instruments
Due Date: Wed, 10/25/17
Grading Type: Numeric
Points Possible: 150
Points Earned: 0
Deliverable Length: Word document of 700–1,000 words with attached Excel Spreadsheet showing calculations
Go To:
Assignment Details
Scenario
Learning Materials
Reading Assignment
My Work:
Online Deliverables: Submissions
