Assessment 3 Instructions: Stock and Bond Valuations

Focus on bond and stock valuation problems and questions.

In this assessment, the emphasis is on calculating the value of bonds and stocks. You will learn about the common features of bonds and learn to differentiate among the types of bonds. The focus then shifts to the mathematics of bond valuation (bond valuation model using the TVM concept). You will also learn about the factors that affect a bond’s price and the relationship between changes in interest rates and bond prices.

In addition to learning about bonds, explore the various components of stock returns, common stock valuation models (such as constant dividend growth and variable growth), the use of the price/earnings (P/E) ratio, and preferred stocks valuation.

Introduction

This assessment focuses on the TVM concept and how it relates to bond and stock valuations.

Instructions

Complete and submit the Assessment 3 Template [XLSX].

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:

  • Competency 1: Analyze financial environments and concepts.
    • Explain what a call provision (call feature) allows (bond) issuers to do.
    • Explain why the S&P 500 Index might be a better measure of stock market performance than the Dow Jones Industrial Average.
  • Competency 2: Apply financial computations and processes.
    • Calculate five bond valuation problems correctly.
    • Calculate five stock valuation problems correctly.
  • Competency 3: Communicate effectively and professionally.
    • Convey clear meaning through appropriate word choice and usage.

RESOURCES:

 

Valuing Stocks and Bonds

The following resources explore different features of a bond, how the bonds are traded, and the mathematics behind the valuation of bonds, including the different types of stocks, how common stocks are different than preferred stocks, role of dividends in the valuation of stocks, and the mathematics behind valuation of stocks. You will also learn about stock indexes such as S&P 500 and the Dow Jones.

  • Cornett, M., Adair, T., & Nofsinger, J. (2019). M: Finance (4th ed.). McGraw-Hill. Available in the courseroom via the VitalSource Bookshelf link.
  • https://courses.vitalsource.com/
  • https://capella.vitalsource.com/#/books/9781260139815/cfi/6/2!/4/2/2/2@0:0
    • Chapter 7, “Valuing Bonds.”
      • This chapter covers bond features and types of bonds, bond valuation, bond pricing, and how interest rates affect bond prices.
    • Chapter 8, “Valuing Stocks.”
      • This chapter covers various components of stock returns and stock valuation.
  • Bonds.
    • Introduces the concept of bonds for a Miami developer.
  • Going Public.
    • Examines how Continental Circuits raise money through an initial public offering.

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