Spears School of Business
Department of Finance
FIN 4223 Investments
Spring 2015
Instructor: Tom Johansen, Ph.D.
E-mail: tom.johansen@okstate.edu
Office: BUS 311
Phone: (405) 744-7267
Office Hours: 9:00-11:30 MW 1:30-3:00 TTh Other hours by appointment.
C
Calculating Beta using Linear Regression
ValueLine
1. Observe 60 months of price data for the
market and the individual stock.
2. Calculate monthly returns.
3. Do a linear regression using the monthly
returns of the stock with the monthly
returns of a sto
FIN 4223: Investments
Using the Normal Distribution
Suppose the returns on large-company stocks are normally distributed. Assume large-company
stocks have a mean return of 11.7% and a standard deviation of 20.6%. What is the approximate
probability that y
SUPPLY AND DEMAND ANALYSIS
I.
Demand
A. Inverse relationship between price and quantity demanded
1. Substitution effect
2. Income effect
B. Change in quantity demanded => movement along an existing demand curve due to a change in the
price of the good in
Chapter 3
Your stock's past does not matter, only its future. Dont worry about what price you originally
bought the stock for, just focus on its current value and what you think it will be in the future.
pg.42
Stock price doesn't matter, use the price-to
There are four national cellular companies across the US. These companies include,
AT&T, Verizon, T-Mobile, and Sprint. There are many factors to consider when buying
the new Apple IPhone 7. All of these businesses offer different data a plan, which
inclu
Under Armour Inc. NYSE
PRICE
41.92
2007
SALES PER SHARE
CHANGE IN SALES
GEOMETRIC AVG
1
3 YR GEO AVG
5 YR GEO AVG
10 YR GEO AVG
BEST
WORST
PRICE/SALES (P/S)
3 YEAR
5 YEAR
10 YEAR
BEST
WORST
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Whole Foods Market Inc.s sales and profits are slowly declining. Their analysts have
a negative outlook on their upcoming reports, as competition is getting stiffer. Food
prices in general are declining and they cant keep up with competition. Companies
al
On this coming Labor Day, economists anticipated on higher employment data. It
turns out the numbers were lower as companies are having to layoff workers.
Augusts reports showed little to no improvement over the market. There has been a
long promise of in
Short Selling
You believe that the common stock of XYZ
company will decline soon, therefore you
decide to short sell 100 shares of XYZ @ $50.
The initial margin is 50% and the
maintenance margin is 30%.
Equity
% Equity =
Current Market Value
MV when sold
FIN 3113: Stock Valuation
Example Problems
1.
Integrated Potato Chips paid a $1.00 per share dividend yesterday. You expect the
dividend to grow steadily at a rate of 4% per year.
a. What is the expected dividend in each of the next 3 years?
b. If the dis
KEY INVESTMENT RATIOS
Sales Growth Rate EPS Growth Rate
Net Income
Return on Assets = Total Assets = (NPM)(TAT)
Net Income
(NPM)(TAT)
Return on Equity = Stockholders' Equity =
1 - DR
Return on Total Capitalization =
Net Income
Stockholders' Equity + Long-
Expected Risk and Return
for Stock j
N
E(Rj) =
(r P ) = r P
t t
1 1 +
r2P2
+ +
rNPN
t=1
Example:
t
Recession
Average
Expansion
Return
Probability
rt
10%
12%
15%
Pt
.15
.50
.35
E(Rj) = (10)(.15) + (12)(.50) + (15)(.35) = 12.75%
N
j =
[rt - E(Rj)]2(Pt)
t=1
Annualizing the Mean and Standard
Deviation
Most returns are stated as annual returns, but what if
the holding period return is for one month. We must
annualize the monthly return and the variance and
standard deviation.
Example: Todays price of XYZ stock
BOND VALUATION
In The Theory of Investment Value, written over 50 years
ago, John Burr Williams set forth the equation for value:
The value of any stock, bond or business today is determined
by the cash inflows and outflowsdiscounted at an
appropriate int
1
FIN 4223: Investments
The Term Structure of Interest Rates
1.
Expectations hypothesis
a.
forward rates embodied in the term structure are unbiased estimates of
expected future spot rates
b.
the current L-T rate = average of current and expected S-T rate
FIN 4223 Bond Valuation
Example Problems Solutions
1. Assume a bond with 5 years to maturity pays a 6% coupon rate annually. The bond has a par
value of $1000 at maturity and the yield to maturity is 7%. What is the current value of the
bond? What is the
VALUATION OF THE COMMON STOCK OF A PUBLICLY TRADED FIRM:
Nike, Inc. (NKE) 2015
I.
Constant Growth Model
D
1
P0 = r - g
where: D = D (1 + g)
1
0
r = rf + (rm rf)NKE = 3.50 + (7.0)(0.80) = 9.1%
g = 13.7% (2009-14)
P
II.
15
(1.04)(1.137)
= = 0.091 - 0.0775
=
Warren Buffett Stock Analysis
PepsiCo, Inc.
In order to determine if he should invest in a company, Warren Buffett analyzes four
particular areas of the company. He wants to find a business that is easy to understand,
has favorable long-term prospects, op
THE ELASTICITY OF DEMAND AND SUPPLY
Price Elasticity of Demand: measure of the responsiveness of the quantity demanded of a
product to a change in its price; very responsive = elastic; not very responsive = inelastic .
When we describe the responsiveness
Buying on Margin
Buy on margin 100 shares @ $50.00 per
share. The initial margin is 50% and the
maintenance margin is 30%.
What if the price increases to $55?
55 - 50
No margin: r =
= 0.10 = 10%
50
55 - 50
= 0.20 = 20%
50% margin: r =
25
What if the price
Jacqueline Gonzalez
4223 Investments
Banner:A11674068
The US has a trend of falling food prices this year. Consumers can be happy about
this, but markets and farmers are suffering financially. There is excess supply of
dairy, meat, and bread products and
Jacqueline Gonzalez
4223 Investments
Banner:A11674068
Donald Trump while giving a speech on Saturday in Iowa said he would
deport criminal illegal immigrants when he gets appointed as President. He
didnt offer any detail to his plan but yet has to explain
University of Toronto
Faculty of Arts and Science
and
Rotman School of Management
RSM 333H1F Introduction to Corporate Finance
Final Examinations, Fall 2012
Duration:3 hours
Aids allowed: Hand-held, battery-operated calculator
and
2-sided, 8.5" x 11" crib
Stocks
A share of stock is a claim on the net
income and assets of the corporation.
Shareholders (stockholders) have
ownership interest in the company
proportional to shares owned.
Large shareholder vs. small shareholders
Rights include:
rights to be resi
Risk and Return
As always in finance the price of an asset is the discounted value of
future payments
The action in bond pricing comes from:
Finding the appropriate discount rate
The one that matches the risk of the cashflows (credit grade)
And, the one t