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.

- The constant growth model.
- The CAPM model and the Security Market Line.
- 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

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

Then choose “Estimates” Tab.

Copy “Earnings Estimate” Table

- 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

- 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).

- 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

- 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).

- 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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