CTUO1109 Bonds and Stocks Worksheet Essay
Order ID |
53563633773 |
Type |
Essay |
Writer Level |
Masters |
Style |
APA |
Sources/References |
4 |
Perfect Number of Pages to Order |
5-10 Pages |
Description/Paper Instructions
CTUO1109 Bonds and Stocks Worksheet Essay
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 that provides current stock and bond pricing and yield information, complete and analyze the tables illustrated below. Your mentor suggests using a Web site similar to this one.
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 |
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$1,000 |
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B-Rated |
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$1,000 |
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C-Rated |
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$1,000 |
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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.
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 (use the Capital Asset Pricing model). You will need to find the risk-free rate online. It is the 5-year Treasury rate. You will need the market return which is just the return on the S&P 500 Index, and it is available online. You should use an average over 5 years (find the historical yearly returns for the S&P 500 Index and average them). You must research your stocks to find the betas. You should be able to find them at finance.yahoo.com.”
Company |
5-year Risk-Free Rate of Return |
Beta (ß) |
5-Year Return of S&P 500 Index |
Required Rate of Return (CAPM) |
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“To complete the next table, you will need the most recent dividends paid over the past year for each stock, next year’s expected dividends, the expected growth rate of the dividends (which you can calculate by taking next year’s dividend subtracting off this year’s dividend and dividing the result by this year’s dividend), 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 of Dividends |
Next year’s Dividend |
Required Rate of Return (CAPM) |
Estimated Stock Price (Gordon Model) = Next year’s dividend / (required rate of return – projected growth rate of dividends) |
Current Stock Price |
Over/under Priced |
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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 |
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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.
Note: You can find information about the top 500 stocks at this Web site.
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=;
Be sure to document your paper with in-text citations, credible sources, and a list of references used in proper APA format.
RUBRIC
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NO RESPONSE |
POOR / UNSATISFACTORY |
SATISFACTORY |
GOOD |
EXCELLENT |
Content (worth a maximum of 50% of the total points) |
Zero points: Student failed to submit the final paper. |
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30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. |
40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. |
50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. |
Use of Sources (worth a maximum of 20% of the total points). |
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5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. |
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15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. |
20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. |
Grammar (worth maximum of 20% of total points) |
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7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. |
10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper. |
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