Individual Project
Valuation of Financial Instruments
Wed, 6/7/17
Numeric
150
Word document of 700–1,000 words with attached Excel Spreadsheet showing calculations
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/ 
Face Value (FV) 
Coupon Rate 
Annual Payment (PMT) 
Timeto Maturity (NPER) 
YieldtoMaturity (RATE) 
Market Value (Quote) 
Discount, Premium, Par 
ARated 

$1,000 






BRated 

$1,000 






CRated 

$1,000 






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 5year 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. You will need to calculate the riskfree rate for this assignment. You will need the market return that was calculated in Phase 2, and the beta that you should be able to find on the Web site.
Company 
5year RiskFree Rate of Return 
Beta (β) 
5Year Return on Top 500 Stocks 
Required Rate of Return (CAPM) 















To complete the next table, you will need the most recent dividends paid over the past year for each stock, expected growth rate for the stocks, 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 (next year) 
Required Rate of Return (CAPM) 
Estimated Stock Price (Gordon Model) 
Current Stock Price 
Over/Under Priced 





















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 
P/E Ratio 
Estimated Stock Price (P/E) 
Current Stock Price 
Over/Under Priced 


















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:
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=;
Yahoo! Finance. (n.d.). Retrieved from http://finance.yahoo.com/
Be sure to document your paper with intext citations, credible sources, and a list of references used in proper APA format.
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