Discussion 1: Explain the role of intuition in decision making.
(350 Words Student Response 250 Words)
Discussion 2: Interest Rate, Stock Valuation, Risk and Returns (400 Words & 3 student Work response 200 words each)
Part 1: Interest Rates
Part 2: Stock Valuation, Risk and Returns
Jurnal Article : decision learning (400 Words)
An interest rate is the price that lenders receive and borrowers pay for debt capital (Brigham & Houston, 2016). Interest rates can be influenced by a few macroeconomic factors such as Federal Reserve Policy and federal budget deficits and surpluses. In the United States, the Federal Reserve Board controls the money supply. They can alter interest rates in several ways. The Fed can buy and sell short-term securities which will cause short-term rates to decline (Brigham & Houston, 2016). They do this when increasing the money supply. A larger money supply may lead to an increase in expected future inflation, which will cause long-term rates to rise as short-term rates fall. A budget deficit occurs when the government spends more than it takes in as taxes (Brigham & Houston, 2016). To cover the deficit, the government must borrow funds. This increased demand for funds increases interest rates. The government can also print more money. By printing money inflation increases which increases the interest rate as well.
In the industry that I am employed, the macroeconomic factor that my industry is most sensitive is the Federal Reserve Policy. I am employed in the banking industry and we deal with the Federal Reserve Policy on a daily basis. When the government stimulates the economy by increasing money supply, businesses and customers deposit their money into our institution and borrow funds from us. One example is our mortgage loan. Our mortgage rates a very low right now, but if the Fed forecasts inflation rate will begin to increase.
Stock valuation is one of the common used mostly in financial marketing. This term is referred to a method that is used in the calculation of the theoretical worthiness and value of a given company and what they have as their stock. Stock valuation is important as it is used monitor and know the potential market prices and at the same time helping to know the amount expected as profit as a result of the movements experienced on prices periodically. Stock valuation is also important as it is used to identify the overvalued and undervalued stocks all in relation to their theoretical value. The main aims of stock valuation considering the fundamental analysis is to ensure that the company has got its intrinsic value. This intrinsic value is normally based on the future flow of cash and the expected profitability of the corporate body. Sometimes these flows can be interpreted more like the demand and supply in the market. This is because it involves the future demand or flows of stock.
Different methods have been used by different stock experts when doing stock valuation. One of the commonly used method is known as the discounted cash flow (also known as income valuation). This method is generally based on the discounting of the profits that are obtained which includes the cash flows, the dividends and earnings that this stock is expected to bring to the shareholders. Based on the capital pricing model for this case, one can also be able to come up with the risk premium which forms part of the discounted rate.
Risk and Returns analysis
Conduction of return and risk investigation is an essential advance in administration of portfolio and examination of the arrival segments. There are stocks markets, currency markets vehicle and securities with more noteworthy level of offers one over the other. On the premise of the resilience of the financial specialist’s hazard is assessed. There is forceful hazard resistance to the group and weight age is more to the weighted normal security utilizing each of their beta. Recognizable proof of the superior workers is finished by this procedure. With a specific end goal to have the finish for the risk and examination of the arrival the last hazard assessment is finished. Connection between the macroeconomic factors and furthermore amongst hazard and resistance is assessed which is the last subject to be contemplated.
Amid the exchange of weights inside the arrangement of the other the risk resilience level of the group is considered. The group of portfolio administration settles on its decisions between the stocks, at that point securities lastly currency showcase instruments this denotes the last conclusion among the different forceful hazard portfolio administration. With high profit for the returned chance the stocks are having a high renouncement of higher returned dangers. There are 70% stocks in the portfolio and with a sheltered market ahead and slightest dangers the securities may take 10% of the portfolio. Staying 20% is devoured by the currency showcase instruments.
Brigham, E.F., & Houston, J.F. (2016). Fundamentals of financial management (14th ed.). Boston, MA: Cengage Learning.
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Holland, D. M., & Myers, S. C. (1978). Trends in corporate profitability and capital costs.
Kaplan, R. S. (2001). Strategic performance measurement and management in nonprofit organizations. Nonprofit management and Leadership, 11(3), 353-370.
The interest rate is the profit that is received over time in relation to an amount loaned (Gitman & Zutter, 2012). It is the compensation that a supplier of funds expects and a demander of funds must pay. A variety of factors can influence the equilibrium interest rate. One of them is inflation, a rising trend in the prices of most goods and services. For example, a lender may be lender may be hesitant to lend money for any period of time if the purchasing power of that money will be less when it’s reimbursed, therefore the lender will demand a higher rate which is called inflationary premium. Thus, inflation pushes interest rates higher; deflation causes rates to decline. A second factor influencing interest rates is a risk. Interest rate risk arises from adverse changes in interest rates, causing higher interest costs or lower investment income and therefore lower profits or even losses. At any point when individuals see that a specific speculation is more dangerous, they will expect a higher profit for that venture as remuneration for bearing the hazard. A third factor that can affect the interest rate is a liquidity preference among investors. The term liquidity preference refers to the general tendency of investors to prefer short-term securities (Gitman & Zutter, 2012).
One of the interesting topics of Chapter 7 and 8 was Going Public. When a firm decides to sell its stock in the primary market, there are three possible ways to do them: Either it can be done with a public offering or with right offerings or with a private placement. To go public, it is very important to get approvals from their current shareholders because currently the company is privately owned and issued stocks. After the approvals, the next step is to get all the documents certified to prove the legitimacy of the company and get investment banks to underwrite the offerings. After this, a company gets registered with SEC and the investment community can begin analyzing the company’s prospects. At this point, all the investment bankers and company executives start promoting the company’s stock by road shows, media to attract potential investors from all over the place. And at last after the underwriter sets terms and prices the issue, the SEC must approve the offering and it becomes public (Gitman & Zutter, 2012). Companies decide how they want to go public depending on the level of involvement company wants from the market and how much capital business needs. Recently Spotify went public and they didn’t release additional shares, rather they simply list existing shares directly on the NYSE without getting help or relying on underwriters to help assess demand and set a price ( Disis & Fiegerman, 2018).
Gitman, L., & Zutter, C. (2012). Managerial Finance. Boston: Prentice Hall – Pearson.
Jill Disis and Seth Fiegerman, April 3, 2018. Spotify goes public in an unconventional IPO. Retrieved from:
Dynamic is a powerful strategy and workers must have the experience to pick up intuitional sense to actualize the best choice in the firm to build up a successful instinct during the time spent dynamic encourages the firm to upgrade its overall revenues and development rates in the market. Dynamic procedures must be demonstrated and should be talked about with the higher specialists, so they are executed on time to proceed with the business forms (Resnik, 2019). The association has a custom and culture and the official and pioneers must utilize their insight to actualize the most the compelling choice in the firm, every procedure has some reactions and the intuition isn’t without disadvantages.
Intuition can advance or rather supplement the sound, just as the boundedly levelheaded creation of choices. For instance, a chief who has some involvement in a similar sort of issue or even a circumstance can have the option to act in a speedy manner with what may appear to be data that is constrained because of their experience (Kaufmann, 2017). It is likewise critical to take note of that the different people who had an encounter of extraordinary emotions had the capacity to accomplish a better in regard to dynamic all the more so when they comprehended the sentiments when deciding.
Taking everything into account, it is likewise critical to have a thought of the issues related with meddling dynamic so they can be stayed away from. Such viewpoints incorporate defective data, partiality, not thinking about different other options, an enthusiastic inclination that is present moment, plication that is improper just as absence of being open, among different elements.
Kaufmann, L., Wagner, C. M., & Carter, C. R. (2017). Individual modes and patterns of rational and intuitive decision-making by purchasing managers. Journal of Purchasing and Supply Management, 23(2), 82-93.
Resnik, D. B. (2019). The Role of Intuition in Risk/Benefit Decision-Making with Research Human Subjects. In Developing Informed Intuition for Decision-Making (pp. 149-160). Taylor & Francis.
Part 1: Interest Rates
Macroeconomic factors that influence interest rates in general
The variables influencing microfinance interest rates for MFIs can be characterized into two general gatherings: 1) interior – the components MFIs can impact: for example work costs, specialized help, creations; or 2) outer – political risks, full scale factors, authoritative risk, and four fundamental parts reflected in the microfinance interest rates: working costs, cost of assets, advance misfortune costs, and benefit. Working expenses speak to around 60 % of the all out MFI costs and generally rely upon the credit size, age, area and customer’s appraising, and so on.
Macroeconomic factors is your industry most sensitive
Like most businesses, the carrier business is affected by the monetary cycle’s pinnacles and troughs. The present development in created economies—like the U.S. that is driven by the extricating money related strategy—has brought about an ascent in business certainty, mechanical creation, and universal exchange.
Impacts on the interest rates experienced within your chosen industry
In any industry, the economy assumes a urgent job that incorporates the general development of the division, and common flight, with the ever-developing interest, is no special case. To give a major picture, Airbus GMF 2016 evaluations the 20-year interest for new traveler and cargo airplane to be a little more than 33,000 airplane comprising a market estimation of over USD $5.2 trillion underlining and setting up the effect of market development.
Part 2: Stock Valuation, Risk and Returns
Stock Valuation. As indicated by the Bureau of Economic Analysis (or BEA), the genuine total national output (or GDP) expanded 4% every year in 2Q14 in the wake of diminishing 2.1% in 1Q14. With financial and modern development, work rates have expanded. This has prompted higher genuine extra cash.
My company doesn’t have stocks right now, so I’ll use Costco Wholesale as an example to explain the stock valuation. Future Costco Wholesale Corp stock predictions formula:
P0 = Div1 / (r – g)
P0 = Stock Price;
Div1= Estimated dividends for the next period;
r = Required Rate of Return;
g = Growth Rate
In this formula, we need to know the value of estimated dividends for the next period; required rate and return as well as growth rate. Let’s get each number individually.
g: Growth Rate = Retention Ratio x ROE
0.52 x 0.24 = 0.1248
r: Required Rate of Return.
R = D / P0 + g
0.65 / 296.09 + 0.1248 = 0.1269
Div1: Estimated dividends for the next period is 65c. Therefore, the future Costco Wholesale Corp stock predictions are:
P0 = Div1 / (r – g)
0.65 / 0.0021 = $309.52
The present stock worth and the assessed stock worth utilizing the Dividend Discount Model is higher on account of the contenders are attempting to get into the membership segment showcase. Likewise, Amazon and Sam’s club have improved their online store distribution centers. So all in all, financing an organization’s activity utilizing stock is superior to financing with securities, since one can anticipate the future patterns and examples base on the information and math just as the market.
Roy, R. (2018). Socio-economic and demographic factors that contribute to the growth of the civil aviation industry. Procedia Manufacturing, 19, 2–9.
Cederholm, T. (2014, September 4). Why economic factors support airline industry growth. Retrieved from https://articles2.marketrealist.com/2014/09/why-economic-factors-support-airline-industry-growth/.
List of Publicly Traded Aviation Companies. (2018, July 2). Retrieved from http://investsnips.com/list-of-publicly-traded-aviation-companies/.
Heakal, R. (2019, November 18). What Are the Forces Behind Interest Rates and What Causes Them to rise? Retrieved from https://www.investopedia.com/insights/forces-behind-interest-rates/.