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[SOLVED] About Bond Valuation,Risk and Return ,Stock Valuation

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Show all your work and screenshot the data retrieved from the databases. Include a reference list of the data and any sources you access. Include a time and date stamp with the data points you include in your calculations. 

Part 1 BOND VALUATION

Rd is the required return on debt from an investor’s view or the cost of debt from the company’s view.

Rd = YTM on a company’s long term bond. 

Table 1

  

Bond


Company Name


Ticker Symbol


Bond Symbol

 

#1


Apple Inc


AAPL


AAPL4122386

 

#2


Starbucks Corp


SBUX


SBUX4254475

Go to FINRA and find the current information on the selected bonds in the Table above. (Include a screenshot of original data from FINRA.)

To access the information from FINRA, go to 

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

Choose “Bonds” Tab on left. Click Search Tab on main screen. 

Enter Bond symbol or company name and find the Bond symbol from the list. 

Using the Bond data you collected from FINRA to answer the following questions. In calculating your answers, make the following assumptions:

A) Assume Semiannual compounding and coupon payments

B) Assume a face or par value equal to $1000

  

Answer the following questions for BOND #1

1) List the Name of the Company of the Bond #1 in Table 1________________________ 

2) Based on the FINRA information, what is the coupon rate on Bond #1? ________ 

3) Based on the FINRA data, when does the Bond #1 mature?

4) Based on the FINRA data, what is the current price of Bond #1 in dollars not percentage of face value. ___________________________ 

5) For Bond #1, calculate the current yield using the information you have available and the formula that follows:

Current Yield= Annual Coupon Payment/Current Price. 

6) Given the assumptions of a $1000 par or face value and coupon payments are paid semiannually, calculate the YTM on Bond #1 given the other information you collected? In your answer list the values of  PMT, PV, FV and calculate YTM. Remember YTM is a nominal rate.

  

Answer the following questions for BOND #2

1) List the Name of the Company of Bond #2 in Table 1__________________________

2) Based on the FINRA information, what is the coupon rate on Bond #2? ________ 

3) Based on the FINRA data, when does Bond #2 mature?

4) Based on the FINRA data, what is the Rd or Yield to Maturity (YTM) on Bond #2. 

5) Given the assumptions of a $1000 par or face value and coupon payments are paid semiannually, calculate the Price of Bond #2 given the other information you collected? In your answer list the values of N, I/YR, PMT, FV and calculate Price. Does your estimated Price match the one given on FINRA. 

6) Based on the information from FINRA, which Bond (#1 or #2) has the highest quality ranking based on the three rating agencies? ___________________ Explain your answer in a paragraph below. 

7) Assume the Rule of Thumb is Rs = Rd + 4%. Calculate Rs, required rate of return on the stock of Apple and the stock Starbucks. Both company’s bonds were given in Table 1. 

Rs for Apple = __________________________

Rs for Starbucks = ________________________

  

Part 2 STOCK VALUATION

Rs is the required return on common stock from an investor’s view or the cost of common stock from the company’s view. Rs can be calculated three ways.

  1. The constant growth model.
  2. The CAPM model and the Security Market Line.
  3. Rule of Thumb. Assume at current the Rule of Thumb is that there      exists a 4% difference between stock and debt required returns. 

Go to the following data sources for the information in this section. Include screenshots of the required data. Include sources in reference list. Include date and time stamps of data collected.  

One source for Stock Valuation is the following: 

Zacks estimates

http://zacks.com

Enter ticker. Copy Page information which includes price and beta. 

Then choose “Estimates” Tab. 

Copy “Earnings Estimate” Table

  1. Collect data and documents      from above source on the four companies listed in Table 2 below. Use the      collected data to complete Table 2. 

Table 2

  

Company 


Company Name 


Ticker


Current Price


Annual Dividend


Growth Estimate (Next 5 years)

 

Stock #1


Pfizer


PFE




 

Stock #2


Wal-Mart Stores Inc


WMT




 

Stock #3


General Electric Company


GE




 

Stock #4


Microsoft Company


MSFT




  1. Use the data in completed Table 2 to calculate required rate      of return on each  stock (Rs) using      the constant growth model formula:

Rs = (D1/P0 )+g where D1 = Do(1+g).

  1. Complete Table 3 below. List Zack’s Beta      estimates for all four companies listed in Table 3. Include time and date      stamp from original source.

Table 3

  

Stock 


Beta

 

Pfizer


 

Wal-Mart Stores Inc


 

General Electric Company


 

Microsoft Company


  1. Based on your completed Table 3 above, list the stocks      that have less risk then the average stock in the market. Explain your      answer(s). 

 

  1. Assume you have $50,000 invested in the      four stocks as listed in Table 4. 

Table 4

  

Stock 


Amount invested 

 

Pfizer


$10,000

 

Wal-Mart Stores Inc


$14,000

 

General Electric Company


$22,000

 

Microsoft Company


$ 4,000

 

Total


$50,000

Use the information in Table 3 and Table 4 to calculate the Beta of your $50,000 portfolio. ______________________________(Show your work.)

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