Part I: Writing Exercise: Covid-19 and the Economy
The ongoing pandemic is shaking the foundations of the global economy. There are many topics to talk about on this. Choose one topic that concerns or interests you.
Your topic may be macro (national or global), micro (company- or industry-specific), or personal (something you are seeing or experiencing). Here are a few examplesâ€¦
- Accumulation of government debt
- Accumulation of student debt
- Insolvency of colleges and universities
- Bailout of airlines â€“ should they happen?
- Unemployment claims
- What will happen to health care premiums because of this?
- Repercussions of the cratering of oil prices
- Is it possible for an economy to sustain itself long-term while social-distancing?
Whatever topic you come up with, take some time and read up about it beyond what you already know. Ask yourself what the present situation is. Find some data and visual aids that help to explain whatâ€™s going on.
In your writeup, first describe your topic, then illustrate the state of things, and finally offer your thoughts. You do not need to provide â€œsolutionsâ€ to the problem; that is up to you.
You will be graded on effort and thoughtfulness. It can be as long as youâ€™d like, and should be 2 pages minimum. Use sources just like you did on Assignment 1 (simply copy/paste URLs as needed). For this exercise I am interested in content; I want to see how you reflect on whatâ€™s going on, and Iâ€™m not very concerned with proper grammar or format. If you would like to run a topic by me, feel free to send me an email.
Part II. Chapter 4 â€“ Performance Ratios
- You have gathered data below from two companies in the same industry.
- Calculate the ROE for both companies using extended (5-part) DuPont.
- Use DuPont analysis to explain the critical factors that account for the differences in the two companiesâ€™ ROE.
- An investor buys a 10-year 7% coupon bond for $1,050, holds it for 1 year, then sells it for $1,040. What was the investorâ€™s rate of return?
- (If you use a financial calculator, to â€˜show workâ€™ let me know what numbers you are using for respective financial functions.)
- Which is a better measure of value of a bond over the life of the bond, Current Yield (CY) or Yield to Maturity (YTM)? Why?
- Suppose you are a professional bond investor, and you believe interest rates will increase dramatically exactly 3 years from today. Then, today, should you look into buying bonds with a maturity of greater or less than 3 years? Why? (Think about how market interest rates change the value of bonds!)
- Suppose Exxon Mobil [XOM] has a sustainable growth rate. The payout ratio for XOM is 40%. For 2016 XOMâ€™s net income is $3B and equity is $15B. What is the sustainable growth rate of XOM during this period?
- All other things equal, a firmâ€™s sustainable growth rate could increase as a result of:
- Increasing the plowback ratio
- Increasing the payout ratio
- Decreasing the return on equity
- Increasing total assets
- What is the expected rate of return from a stock that sells for $30 per share, pays $1.54 annually in dividends, and is expected to sell for $32.80 per share in one year?
Part II: Chapter 6 â€“ Bond Valuation
A) A bond with a coupon rate of 8% and a 30-year maturity is selling for $900. What is its yield to maturity?
B) The same bond is selling for $1,100. What is its yield to maturity?
Part II: Chapter 7 â€“ Stock Valuation