Stock Performance and Equity Investments - course project
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choose_0.docxChoose three of the stocks - two within the same industry plus one additional stock - from the Company Selection and Stock Watch completed in module 03 and then locate interest rates on two other investments that are not stocks, such as bank certificates or government bonds. You will now have a total of five investments.
In your assignment, identify each of the five investments and discuss the following:
· Which of the five investments do you think are most highly affected by the level of interest rates in the economy? Why?
· Rank the five investments in order of the most risky to the least risky and explain in detail why you ranked them in that manner.
· What types of risk do you think affects each of the investments?
Your assignment should be a minimum of 2 written pages and utilize APA formatting. In-text citations and a reference page should also be included.
Five Chosen stocks are:
1) Ford Motor Company
2) General Motors Company
3) Apple Inc.
4) 5 Year Certificate of deposit of Colorado Federal Savings Bank with APY of 2.00% and with minimum deposit of $5000
5) US 5 year bond with current yield of 1.151%
The five investment current information from Yahoo finance are:
Investment 1
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Ford Motor Co. (F) (NYSE) |
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Previous Close: |
12.31 |
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Open: |
12.29 |
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1y Target Est: |
13.65 |
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Beta: |
1.41284 |
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Next Earnings Date: |
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Day's Range: |
12.25 - 12.37 |
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52wk Range: |
10.44 - 15.84 |
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Volume: |
109,20,442 |
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Avg Vol (3m): |
346,31,400 |
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Market Cap: |
49.87B |
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P/E (ttm): |
5.81 |
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EPS (ttm): |
2.12 |
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Div. & Yield: |
0.60 (4.93%) |
Investment 2
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General Motors Company (GM) (NYSE) |
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31.75 |
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Open: |
31.6 |
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1y Target Est: |
36.65 |
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Beta: |
1.65374 |
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Earnings Date: |
19 Oct - 24 Oct (Est.) |
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Day's Range: |
31.55 - 31.75 |
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52wk Range: |
24.62 - 36.88 |
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Volume: |
51,20,238 |
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Avg Vol (3m): |
131,77,800 |
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Market Cap: |
49.43B |
|
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P/E (ttm): |
4.05 |
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EPS (ttm): |
7.81 |
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Div. & Yield: |
1.52 (4.92% |
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Investment 3 |
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Apple Inc. (AAPL) (NASDAQ) |
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|
|
|
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Prev Close: |
107.93 |
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Open: |
107.78 |
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1y Target Est: |
124.11 |
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Beta: |
1.3839 |
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Earnings Date: |
25 Oct - 31 Oct (Est.) |
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Day's Range: |
107.77 - 108.44 |
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52wk Range: |
89.47 - 123.82 |
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Volume: |
108,78,728 |
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Avg Vol (3m): |
362,17,800 |
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Market Cap: |
582.27B |
|
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P/E (ttm): |
12.6 |
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EPS (ttm): |
8.58 |
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Div. & Yield: |
2.28 (2.10% |
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Investment 4
5 Year Certificate of deposit of Colorado Federal Savings Bank
APY RATE MIN DEPOSIT
Colorado Federal Savings Bank 2.00% 1.98% $5000
Investment 5
US 5 year bond
Prev. Close 1.151
Price 99.88
Coupon 1.125
Price Open 99.89
Maturity Date 31 JUL 2021
1-Year Return - 23.67%
Solutions:
Part a)
5 Year Certificate of deposit of Colorado Federal Savings Bank will be the most affected by the volatility of interest rate in the economy, because this is the security which is traded in the money market and issued by the banks with a fixed maturity date, fixed coupon rate, with minimum deposit required.
Since this is the debt security, so this security price will depend on the yield to maturity (Interest rates), so any movement in the interest rates will directly affect the price of the CD. If interest rate increases, the price of CD will decrease and if interest rate decreases, the price of CD will increase.
Same argument can be put for the Government bond but since this is issued by the Government rather than by the bank in the 5 Year CD case, means this is backed by the Government, so price volatility will be low as compared to 5 Year CD when interest rate changes.
There is not much volatility of stock investments when interest rate changes because they are equity instruments rather than the debt securities.
So, 5 Year Certificate of deposit of Colorado Federal Savings Bank will be the most affected by the volatility of interest rate in the economy.
Part b)
Ranking of Investments by the risk parameter
|
Investment |
Risk |
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US 5 year bond |
Very low |
|
5 Year Certificate of deposit |
low |
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Apple Inc. |
Average |
|
Ford Motor Company |
High |
|
General Motors Company |
Very High |
· US 5 year bond have the lowest risk because of following reasons
1. Backed by the Government so default risk is very low.
2. Government can raise money from taxes if their condition is not bad.
· 5 Year Certificate of deposit also have low risk but high risk than US 5year bond because of following reasons
1. This is issued by the Commercial banks not corporates companies.so credit risk is very low.
2. Default risk is very low but higher than US 5 year bond.
· Apple Inc. have average risk because of following reasons
1. Beta of stock is 1.3899 which measure the systematic risk (risk that can’t be eliminated and present due to macroeconomic factors) is less than the other two stock companies Ford motor and General motor which have Beta of 1.41 and 1.65 respectively.
2. Operating Profit margin is 28.55% is much bigger than other two stocks.
· Ford motor company have the high risk because of following reasons
1. Beta of stock is 1.41 which is greater than Apple Inc. and less than General motor company.
2. Operating profit margin is 6.29% which is greater than operating profit margin of General motor company which has 5.21% operating profit margin.
· Ford motor company have the high risk because of following reasons
1. Beta of stock is 1.65 which is greater than both Apple Inc. and ford motor company.
2. Operating profit margin is 5.21% which is less than the operating profit margin of Ford motor company.
Part c)
Risk affects each type of investments.
· Macroeconomic factors like inflation, Currency rates, Geography factors, social factors etc., affect all the companies.
· Risk faces by the US 5 year bond are the current interest rates.
· Risk faces by the 5 Year Certificate of deposit are the current interest rates, default risk, low deposit with the banks.
· Risk faces by the Apple Inc. are the Technological hurdles, rely on network carriers, wholesalers, national and regional retailers, financing.
· Risk faces by the Ford Motor company foreign currency risk, commodity price risk, credit risk, labour, increased price competition.
· Risk faces by the General motor are almost identical to the risk faces by the Ford Motor.
References
· AAPL Key Statistics | Apple Inc. Stock - Yahoo! India Finance
https://in.finance.yahoo.com/q/ks?s=AAPL
· Yahoo! India Finance
https://in.finance.yahoo.com/q?s=F & https://in.finance.yahoo.com/q?s=AAPL & https://in.finance.yahoo.com/q?s=GM&ql=0
· The Motley fool
Ashraf Eassa - http://www.fool.com/investing/general/2015/12/01/3-risks-to-apple-incs-business.aspx
