Solved by a verified expert :Assignment details:Word document of 500 words with
attached Excel Spreadsheet showing calculations
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 (IP3, beware that Yahoo Finance no longer
offers bond information. it is best to use Morningstar Bonds listing athttp://www.morningstar.com/credit-rating/corporate.aspxthat provides current
stock and bond pricing and yield information, complete and analyze the tables
illustrated below.
Note:I chose The Fresh Market
(TFM), Pinnacle Foods Inc (PF), and Costco Wholesale Corp (COST)Costco
Wholesale CorpCOSTPinnacle
Foods IncPF
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.
·
Based on the material you learn in this
Phase, what would you expect to happen to the yield to maturity and market
value of the bonds if the time to maturity was increased or decreased by 5
years?
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. You will need to calculate the
risk-free rate for this assignment. You will need the market return that was
calculated in Phase 2, and the beta that you should be able to find on the Web
site.
Company
5-year Risk-Free
Rate of Return
Beta (β)
5-Year Return on Top
500 Stocks
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, expected growth rate for the stocks, 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 (next year)
Required Rate of
Return (CAPM)
Estimated Stock
Price (Gordon Model)
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.
·
Explain which of the 2 models seemed to be
the most accurate in estimating the value of the stocks.
·
Based on the material that you learn in
this Phase, what would you expect to happen to the value of the stock if the
growth rate, dividends, required rate of return, or the estimated earnings per
share were to increase or decrease? Be sure to explain each case separately.
http://finance.yahoo.com/echarts?s=%5egspc+interactive#{“allowChartStacking”:true}
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=;
Yahoo! Finance. (n.d.). Retrieved from
http://finance.yahoo.com/
Be sure to document your paper
with in-text citations, credible sources, and a list of references used in
proper APA format.
You may also use
these website for help or others:
IP3, beware that Yahoo Finance no longer
offers bond information. it is best to use Morningstar Bonds listing athttp://www.morningstar.com/credit-rating/corporate.aspx
http://www.teachmefinance.com/
http://finance.yahoo.com/echarts?s=%5egspc+interactive#{“allowChartStacking”:true}
http://www.finpipe.com/what-is-equity/
