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Running head: INVESTMENT IN STOCKS 1

Course Project - Investments, Interest Rates, and Risk 2

Module 06 Course Project - Investments, Interest Rates, and Risk

Veronica Almodovar

Rasmussen College

First part

The five chosen stocks include Kellogg Company $82.86 NYSE, General Mills $72.95 NYSE, Target Corporation $70.12 NYSE, 5-year certificate of deposit of the community federal savings bank with an annual percentage rate (APY) of 1.70% and a minimum deposit of $500 and a 5-year US treasury bond with a yield of 1.16. Based on the information, the investment that will be mostly affected by the level of interest rates in the economy is the 5-year certificate of deposit of the community federal savings bank. This is because the security is traded in money markets and is issued by the bank with a fixed coupon rate, fixed maturity date and it also requires a minimum deposit. Considering that it is a debt security, its price will change with changes in yield to maturity or interest rates which means that fluctuations in interest rates will have a direct effect on the price of the certificate of deposit. Increase in interest rates will lead to decrease in the price of the certificate of deposit and decrease in interest rates will lead to an increase in the price of the certificate of deposit.

Second part: Ranking of the investment according to risk parameter

Ranking of the five investment in order of the riskiest to the least risky would be:

i. General Mills

ii. Target Corporation

iii. Kellogg Company

iv. 5-year year certificate of deposit of the community federal savings bank

v. 5-year US treasury bond

5-year US treasury bond is the least risk among the five investments since it is backed by the government thus making default risk to be very low. The government usually have many sources of funds and it can also raise funds from taxes to cater for its obligations thus reducing default risk. 5-year year certificate of deposit of the community federal savings bank comes next in the rank of least risky investments since it also has low risk but it is riskier than the government bond. This is because it is issued by commercial banks thus making the credit risk to be very low but still has a higher default risk compared to the US treasury bond.

Kellogg Company comes next in the rank of less risky investments since it has a relatively lower beta when compared to the other companies. Systematic risk or volatility can be measured using a beta (Brigham & Ehrhardt, 2013). Kellogg Company has a beta of 0.42 (Summary for Kellogg Company Common Stock , 2016). General Mills has a beta of 0.57 (General Mills, Inc. Common Stoc Stock, 2016). Target Corporation has a beta of 0.47 (Summary for Target Corporation Common Stock, 2016). Based on these betas, Kellogg will come next after the certificate of deposit in relation to less risky investments followed by Target and lastly General Mills thus making General Mills to top the list of the five investments ranked according to risk parameters.

Third part: Risks affecting each investment

Macroeconomic factors such as currency rates, geographical factors, inflation and social factors affect all the investments chosen. The 5-year certificate of deposit is affected by risks such as default risk, current interest rates and low deposits with the commercial banks. The 5-year US treasury bond is affected by current interest rates risks. Risks faced by Kellogg Company include competition and environmental factors since the company is subject to government regulations and rules relating to release of materials into the environment (Hitt, Ireland, & Hoskisson, 2007). Considering that General Mills and Kellogg are in the same industry, they share most risks in addition to risks associated with climate change. Risks faced by target corporation include competition from other retailers such as Walmart and emergence of online retail stores such as Amazon.

References Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management : theory and practice. Mason, Ohio : South-Western ; Andover: Cengage Learning. General Mills, Inc. Common Stoc Stock. (2016, September 16). Retrieved from Finance.yahoo.com: http://finance.yahoo.com/quote/GIS/holders?p=GIS Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2007). Strategic management : competitiveness and globalization; [concepts and classes]. Mason, Ohio: Thomson South-Western. Summary for Kellogg Company Common Stock . (2016, September 16). Retrieved from Finance.yahoo.com: http://finance.yahoo.com/quote/K?p=K Summary for Target Corporation Common Stock. (2016, September 16). Retrieved from Finance.yahoo.com: http://finance.yahoo.com/quote/tgt?ltr=1