Valuation
OU Tech has $600,000 of debt on its balance sheet and pays corporate taxes at the 40% rate. The CEO of
OU Tech faces an investment opportunity that requires an initial investment of $100,000 in new
machinery and is expected to generate annual ca
Spears School of Business
Department of Finance
FIN 4223 Investments
Spring 2015
Instructor: Tom Johansen, Ph.D.
E-mail: [email protected]
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
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
I.
II.
Cooper Davis
10/4/16
Assignment 7
Page | 1
Barrons Up and Down Wall Street
a. The Danger from Deutsche Bank by Randall Forsyth
i.
Summary
The Deutsche Bank equity and market securities have plunged recently amongst reports
that hedge funds are pul
Page |1
Cooper Davis
10/21/16
Peter Hull
Fin 4223
Cramer Assignment
Jim Cramer's book Real Money presents many different tools and advice that is directed
towards the normal individual who wants to become a part of the financial markets. While
reading the
I.
II.
Cooper Davis
11/5/16
Assignment 9
Page |1
Barrons Up and Down Wall Street
a. Trade's Big Role in the Presidential Election by Randall Forsyth
i.
Summary
S&P 500 index extended its worst losing streak this year to nine sessions on Friday. This is
b
Cooper Davis
9/27/16
Assignment 6
I.
Barrons Up & Down Wall Street
a. Global Markets Cast Ballots for Clinton After Debate by Randall Forsyth
i.
Summary
The first presidential debate between Hillary Clinton and Donald Trump influenced the
financial marke
Cooper Davis
10/29/16
Assignment 8
Page |1
I.
Barrons Up and Down Wall Street
a. Stranger Than Fiction: The FBI and Clintons Email by Randall Forsyth
i.
Summary
Presidential candidate Hillary Clinton is having her email scandals case reopened just weeks
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
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
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
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
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-
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