Bond and Stock Performance Analysis

  1. Assume that par value of the bond is $1,000. What were the last prices of the bonds in $$
    $ (listed in the Price column)? Show your work in your project.
  2. Assume that par value of the bond is $1,000. Calculate the annual coupon interest
    payments. Show your work in your project.
  3. Assume that par value of the bond is $1,000. Calculate the current yield of the bonds.
    Show your work in your project.
  4. Write a 1-2 page of the analysis of the bonds. In your analysis you should answer the
    following questions. Please explain your answer to each question.
    a) How much is the YTM listed in quotations is for the bonds? Explain the meaning
    of YTM?
    b) If you are going to buy a bond issued by THE COMPANY, which bond would
    you choose? Why?
    c) Are these bonds callable? If the bonds that you chose are callable (non-callable),
    will it change your decision to buy them?
    d) If you are an investor who is looking for a bond to invest in, are you going to buy
    a bond that you chose? Take a look at the balance sheet and income statement of
    the company. What data or ratios support your decision to buy this bond or not?
    You may want to incorporate the results of the Research Project Part 1, as well as
    the results of the financial leverage ratios to answer this question. You should
    develop a specific recommendation, with supporting rationale to explain your
    answer.
    -4- Collect and evaluate the data about stock performance of the assigned company for the
    last one year. (totally 35% of the project grade).
    1) Find the market ratios for the company for the last 1-3 years and its major competitor for the
    last year in the Internet. (10% of the project grade)
    a. Present the market ratios as the table(s) in your project.
    b. Write about 1 page of analysis of the market ratio results that you found. Compare the
    market ratio results against the industry or main competitor. In your report please answer
    the question: Are the common stockholders receiving an adequate return on their
    investment?
    c. Compare the P/E ratio of your company with the industry average or 5-year average. Is
    the stock overvalued, undervalued, or properly valued? Why? In accordance with your
    findings, is it reasonable to buy the stock? Please explain your answers.
    -2) Analysis of the historical stock prices trend for the last year. (10% of the project grade)
    a. Collect and evaluate the data about stock prices of the assigned company for the last one
    year for the company and its major competitor.
    b. Create the chart(s) using the stock price chart tools on the websites or Excel. Present the
    chart(s) in your project.
    c. Write about 0.5 page of analysis the historic stock prices trend for the last year.
    3) Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the required
    return on THE COMPANY stock. Note that you will need the risk-free rate and the market
    return. Show this information in your project. (15% of the project grade)
  5. Apply the Capital Asset Pricing Model (CAPM) Security Market Line to estimate the
    required return on stock. Note that you will need the risk-free rate, beta, and the market
    return.
    a) To get the current yield on 10-year Treasury securities go to www.finance.yahoo.com –
    click on Markets – U.S. Treasury Bonds Rates. You will use the current yield on 10-year
    Treasury securities as the risk-free rate to estimate the required rate of return on stocks.
    Discuss how appropriate this rate is as a measure of risk.
    b) Between 1926 and 2017, the compound annual rate of return of S&P 500 is estimated a
    10%. We will use this number as the market return. Discuss how appropriate this rate is
    as a measure of return.
    c) Beta is listed in www.finance.yahoo.com under Trading Information – Stock Price
    History, as well as on the company’s front page. What is the beta listed for the company?
    What does it mean?
    d) Calculate the required return on the stock using the Capital Asset Pricing Model
    (CAPM) Security Market Line. Please show your work.
  6. There are several methods how to calculate the growth rate. One of the possible ways
    is to calculate the sustainable growth rate as g = ROE *(1- Dividend payout ratio). You
    can find ROE and the dividend Payout Ratio on www.finance.yahoo.com under Statistics.
    Calculate the company’s sustainable growth rate. Please show your work.
  7. Apply the Gordon model (constant growth rate model) to calculate the intrinsic
    (economic) value of the stock. Please show your work.
    Please note that for some companies it is not possible to use the Gordon model. If that is
    the case, please explain why it is not possible to use this model for your company. What
    other models is it possible to use?
  8. Compare the result of your calculations with the current stock price. Is the stock
    overvalued, undervalued, or properly valued? Why? In accordance with your findings, is it
    reasonable to buy the stock? Why?

Sample Solution

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