Module 2 – SLP
Stock and Bond Valuation
For your second SLP assignment, continue to do research on the company you chose to write about for your Module 1 SLP. This time you will be doing research about the valuation of the company to try to determine if its stock price is overvalued or undervalued. You can use Google Finance, Yahoo Finance, or similar Web pages to find the financial information about this company.
Write a 2- to 3-page paper with the following items:
- What is the P/E ratio of this company? How does the P/E ratio compare to other companies in this industry? Based on the P/E ratio, do you think the company is overvalued or undervalued?
- Find the companyâ€™s balance sheet. Calculate the book value of each share. This can be done by taking the total assets and subtracting total liabilities. Then divide the number you get by the total number of outstanding shares. Is the number you get higher or lower than the current price of the share? Based on what youâ€™ve found, would you say the stock is overvalued or undervalued?
- Finally, do a search on what different analysts have to say about your company. Do they generally recommend buying the stock or selling the stock? What reasons to they give for their assessment? Find at least three analyst reports about this company.
SLP Assignment Expectations
- Answer the assignment questions directly.
- Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
- For computational problems, make sure to show your work and explain your steps.
- For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the â€œWriting Style Guide,â€ which is found under â€œMy Resourcesâ€ in the TLC Portal.
Module 2 – Background
Stock and Bond Valuation
Start off with these two tutorials that will give you an overview of the basic methods of valuing stocks and bonds from Subjectmoney:
Subjectmoney. (2013, January 2). How to price/value bonds – formula, annual, semi-annual, market value, accrued interest [Video file]. Retrieved from https://www.youtube.com/watch?v=7zCqoED8MVk
Subjectmoney. (2013, January 3). Dividend discount model (DDM) – constant growth dividend discount model – how to value stocks [Video file]. Retrieved from https://www.youtube.com/watch?v=n76Pz3HOBPo
Now dig much deeper into bond and stock valuation with the following books chapters. They cover not only the computational methods but also provide a general overview of stock and bond markets:
Ross, S., Westerfield, R., & Jordan, B. (2007). Chapter 6: Interest rates and bond valuation. Essentials of Corporate Finance. McGraw Hill. Retrieved from http://novellaqalive2.mhhe.com/sites/dl/free/007000000x/484691/Part4_Chap6.pdf [If this link is down, click Interest Rates and Bond Valuation for an alternative link.]
Fabozzi, F. J., & Peterson Drake, P. (2009). Chapter 7: Asset valuation: Basic bond and stock valuation models. Finance: Capital markets, financial management, and investment management. Wiley. Available in the Trident Online Library.
Finally, for some examples of valuation calculations in Excel see the following videos:
Moy, M. (2014). Bond valuation in Excel. Retrieved from https://www.youtube.com/watch?v=H-_NP0UxX_U
Girvin, M. (2010). Stock valuation with dividend growth model. ExcellsFun. Retrieved from https://www.youtube.com/watch?v=cbRIhwkGAnQ
Girvin, M. (2010). Stock value based on present value of future dividend cash flows. ExcellsFun. Retrieved from https://www.youtube.com/watch?v=G2VIY5E3I3s&t=163s
Davis, A. (2016). Bond pricing. Retrieved from https://www.youtube.com/watch?v=-DnARyndirI
Ahmad, A. (n.d.). Bonds part II: Pricing. Coursera. Retrieved from https://www.coursera.org/learn/finance-markets/lecture/EpByC/bonds-part-ii-pricing
Ozoguz, A. (n.d.) Basics of equity valuation. Coursera. Retrieved from https://www.coursera.org/learn/global-financial-markets-instruments/lecture/vHPRN/basics-of-equity-valuation
Vishwanath, S. (2007). Chapter 24: Debt markets. Corporate finance: Theory and practice. SAGE Publications India. Available in the Trident Online Library.