Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset? Explain the benefits derived from investing in deep discount bonds.

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Investments FIN403

Assignment Questions

Q1:  Why do most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

 

  1. Why do most investors hold diversified portfolios?

Investors hold diversified portfolios in order to reduce risk, to lower the variance of the Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many financial tools used. A diversified portfolio should accomplish this because the returns for the alternative  assets  should  not   be  correlated   so  the   variance   of   the   total  portfolio   will  be generally reduced.

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  2. Why do most investors hold diversified portfolios?

Investors hold diversified portfolios in order to reduce risk, to lower the variance of the Portfolio. Variance is considered a measure of risk of the portfolio and is one of the many financial tools used. A diversified portfolio should accomplish this because the returns for the alternative  assets  should  not   be  correlated   so  the   variance   of   the   total  portfolio   will  be generally reduced.

Q2: Given the following financial data, compute:

  1. Return on equity.
  2. Quick ratio.
  3. Long-term debt to equity.
  4. Fixed-charge coverage.

 

Assets:  
Cash $ 2,500
Accounts receivable 3,000
Inventory 6,500
Fixed assets 8,000
Total assets $20,000
   
Liabilities and stockholders’ equity:  
Short-term debt $ 3,000
Long-term debt 2,000
Stockholders’ equity 15,000
Total liabilities and stockholders’ equity $20,000
   
Income before fixed charges and taxes $ 4,400
Interest payments 800
Lease payment 400
Taxes (35 percent tax rate) 1,120
Net income (after-taxes) $ 2,080

 

 

Q3: Explain the benefits derived from investing in deep discount bonds.

Q4: Explain how to manage bond portfolios and what are the portfolio management strategies.

 

 

Discuss the capital budgeting you had to do in order to complete the project. What types of projects do you think require the least detailed and the most detailed analysis?

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Unit 4 Finance Discussion

Think about a few personal projects you have been involved with in the last year or so. A project could be anything from planning a vacation, building a patio deck, or even mowing the grass or painting a room. Discuss the capital budgeting you had to do in order to complete the project. What types of projects do you think require the least detailed and the most detailed analysis?

Describe the relationship between risk and return and how you would measure for both in your project. What other factors play into capital budgeting decisions? Explain how you would calculate the weighted average cost of capital (WACC) and its components for your project.

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Unit 4 Finance Essay

Capital Investment

For the purpose of this assignment, a project is defined as any endeavor that had a capital outlay. Pick a project you have recently completed or one you would like to complete in the near future. This could be a project in your home, place of work, or even church or other organization with which you are familiar. Respond to the prompts below.

Introduce your project with a reflection on the importance of selecting the right projects in which to invest capital. Do we always select those projects that have the highest return on investment (ROI)?

Describe the relationship between risk and return and how you would measure for both in your project. What other factors play into capital budgeting decisions?

Explain how you would calculate the weighted average cost of capital (WACC) and its components for your project.

Your essay should be at least two pages in length, not counting the title and reference pages. You are required to cite and reference at least your textbook. Use APA format to cite in-text and reference citations.

Define financial system. Describe the role of financial intermediaries. Discuss the different types of financial intermediaries.

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Financial system

Read the article by using the following link:

https://www.wallstreetmojo.com/financial-intermediary/

  • Define financial system.
  • Describe the role of financial intermediaries.
  • Discuss the different types of financial intermediaries.

 

What is the monthly payment? How much of the first payment is interest? How much of that first payment actually goes to reducing the principal? How much of the last payment goes to interest? How much of that last payment goes to completing the payments on the home?

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Module 3 Credit Card and Mortgage Worksheet

Credit Cards

You have a credit card with a current balance of $150. The interest rate is 13.99% and you use this card to pay your cell phone bill of $89 each month. That is now the only time you use this card.

Reminders:

  • Finance charge is found by dividing the interest rate by 12 and then multiplying by the carry-over balance. This formula is entered for you!
  • Excel is a calculator, and you can perform any mathematical calculation by first starting with an equal sign (=).
  • You can autofill columns by dragging on the little green square in the bottom right corner of a cell.

Use Excel to answer the following questions:

  1. If your minimum payment is 15% of your new balance, what is the balance of your card month 13 (line 14 in Excel)?
  2. If your minimum payment is $75, what is the balance of your card month 13 (line 14 in Excel)?
  3. If your minimum payment is 50% of your new balance, what is the balance of your card month 13 (line 14 in Excel)?
  4. Use guess and check: What DOLLAR amount would allow you to pay off the total balance in month 13 (line 14 of Excel)? (Your last payment, in line 12, may be less than the payment of all other months.)
  5. What do you think is a better idea:
    1. Paying a percentage of your monthly balance
      or
    2. Paying a fixed amount each month Why?

 Mortgages

You decide to buy a house! The home is priced at $279,000 and the bank has agreed to finance your home at 5.1% for 30 years.

(Note: Excel approximations do not include property taxes or insurance.)

Use the Excel document to answer the following questions:

  1. What is the monthly payment?
  2. How much of the first payment is interest? How much of that first payment actually goes to reducing the principal?

    Use the autofill feature to drag this out for the 30 years (or 360 months).

  3. How much of the last payment goes to interest? How much of that last payment goes to completing the payments on the home?
  4. At which month did you pay approximately half of the mortgage? Is this halfway through your mortgage?

    Change the payment value to be $100 more than it is now (just type in the value).

  5. If you pay just $100 more each month, when will you make your last payment?
  6. How much time does that cut off of your mortgage (how many months do you not have to make a mortgage payment)?
  7. If you paid $100 more for ____ months, you paid an extra ______ over that time period.
  8. If you had paid your normal $1,514.83 for the _____ months you cut off the mortgage, you would have paid _______ because of principal and interest.
  9. Therefore, by paying an additional $100 per month, you will save ________ over the life of the mortgage.

 

Total Net Operating Capital XYZ, Inc. reported $20 million in operating current assets, $25 million in net fixed assets, and $6 million in operating current liabilities. How much total net operating capital does XYZ, Inc. have?

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Calculate the value of a firm through the use of discounted cash flow analysis.

Corporate Tax Liability and Balance Sheet Analysis

Ratio analysis provides useful information for a company’s operations and financial conditions. Conducting analysis in a mechanical, unthinking manner is dangerous, but when the ratio analysis is used with good judgment, it can provide useful insights into a firm’s operations and identify the right questions to ask.

In this competency assessment, you address the time value of money also known as discounted cash flow analysis. This type of analysis is crucial to being able to viably analyze financial statements.

Problems:

Complete problem: Total Net Operating Capital XYZ, Inc. reported $20 million in operating current assets, $25 million in net fixed assets, and $6 million in operating current liabilities. How much total net operating capital does XYZ, Inc. have?

Show your work.
Complete problem: Balance Sheet Analysis
Complete the balance sheet and sales information in the table that follows for XYZ, Inc., using the following financial data:
Show your work.
Total assets turnover: 1.5

Gross profit margin on sales: (Sales – Cost of goods sold)/Sales = 25%

Total liabilities-to-assets ratio: 40%

Quick ratio: 0.80

Days sales outstanding (based on 365-day year): 36.5 days

Inventory turnover ratio: 3.75

Partial Income Statement Information

Sales

Costs of goods sold

Sold

Balance Sheet Information

Cash

Accounts payable

Accounts receivable

Long-term debt

50,000

Inventories

Common Stock

Fixed Assets

Retained earnings

100,000

Total Assets

$400,000

Total liabilities and equity

Complete problem: Yield to Maturity for Annual Payments

XYZ Corporation’s bonds have 14 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $950. What is their yield to maturity? Show your work.
Complete problem: Required Rate of Return
Show your work.
Suppose rRF = 6%; rM = 10%; and rA = 14%

Calculate Stocks A’s beta.
If Stock A’s beta were 2.0, then what would be A’s new required rate of return?
Complete problem: Portfolio Beta

You have a $2 million portfolio consisting of a $100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling $100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio’s new beta be after these transactions? Show your work.
Prepare this Assignment by responding to the problems as an Excel® or Microsoft® Word®, showing all necessary formulas and steps. List each question, followed by your answer.

The Module 2 Competency Assessment has 3 parts.

Part 1 Prepare balance sheet analysis using financial data

Calculate corporate tax liabilities
Calculate liabilities and equity
Part 2 Analyze Portfolio Beta

Calculate stock beta
Part 3 Calculate corporate tax liabilities

Calculate yield to maturity for annual payments
Analyze portfolio beta

It has been found by researchers that P/E and profitability ratios are not necessarily highly correlated—positively or negatively. Think carefully about this issue and discuss why that is the case.

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Discussion

It has been found by researchers that P/E and profitability ratios are not necessarily highly correlated—positively or negatively. Think carefully about this issue and discuss why that is the case. Specifically, think about the role of earning numbers, how they are generated, what their purpose is, how markets view them, other factors that impact the quality of these numbers, and other sources of information that are needed to interpret these numbers correctly.

Which two of the following are ways for a company to return money to shareholders?Which two of the following are reasons that companies should pay dividends?

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Dividend and Dividend Policies

  1. Which two of the following are ways for a company to return money to shareholders?
    1. Payment of a dividend in cash
    2. Payment of a dividend in shares of stock
    3. Repurchasing shares
    4. Splitting the stock 5:1

 

Answer  _____                        Answer  _____

 

 

  1. Which two of the following are reasons that companies should pay dividends?
    1. The payment of dividends forces the company to seek more external financing, which subjects the company to the scrutiny of investors.
    2. Companies should not reinvest excess cash.
    3. Dividends provide a way for the management to inform investors about the company’s future prospects.
    4. Due to the way in which dividends are taxed, investors should prefer the retention of funds to the payment of dividends.

 

Answer  _____                        Answer  _____

 

 

  1. Which of the following are reasons that companies should not pay dividends?
    1. The dividend irrelevance theory and the tax preference theory
    2. The bird in the hand theory and the agency theory
    3. The signaling theory and the agency theory

 

Answer  _____           

 

“Dividend”ed We Stand / Gordon Growth Model

Show your work for partial credit

 

  1. Last year, CompanyX paid a dividend of $2 per share. Use a growth rate of 2% per year and a discount rate of 5% to value the stock. What is the implied stock price? Write your answer in dollars and cents, for example, $123.45.

Answer      $                    .___ ___

 

 

LewCo, a construction company, pays an annual dividend to the stock owners on the last day of each year. LewCo paid a dividend of $10 per share on December 31, 2019. LewCo has increased the dividend by 6% per year since the company started in 1958, and investors believe this will continue.

  1. Today is January 1, 2020, and the stock price is $400 per share. What expected return (r*, discount rate, cost of capital) are investors attaching to LewCo based on the Gordon Growth Model? Write your answer in percentage points and basis points, for example, 12.34%.

Answer      _____.___ ___%

 

 

 

  1. Based on the model, what will be the stock price on January 1, 2021 (one year in the future)? Remember that the company pays a dividend on December 31 of each year; your answer should be the value after the dividend payment on December 31, 2020.

Write your answer in dollars and cents, for example, $123.45.

Answer      $                    .___ ___

 

 

 

Assume an investor purchased $100,000 of LewCo stock on January 1, 2020, and liquidated (sold) it a year later on January 2, 2021, after receiving the dividend payment.

  1. What is the investor’s price return or capital gain?

Write your answer in BOTH dollars and cents and in percentage points.

Answer      $                    .___ ___                        Answer _____.___ ___%

 

 

 

 

  1. What is the investor’s total return?

Write your answer in BOTH dollars and cents and in percentage points.

Answer      $                    .___ ___                        Answer _____.___ ___%

Has patient revenue increased or decreased from previous years? What could this indicate about the financial position of St. Anthony Medical Center?

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 St. Anthony Medical Center

Instructions
This assessment has two main parts.

Analysis of the Balance Sheet
This part of the assessment will focus on analyzing the balance sheet for St. Anthony Medical Center. Relevant scoring guide criteria:

Explain the financial position of St. Anthony Medical Center by comparing assets and liabilities shown in the Financial Statement [XLSX].
“Explain” means to make something (an idea, situation, or problem) clear to someone by describing it in more detail or revealing relevant facts or ideas.
Explain the financial position of St. Anthony Medical Center compared to previous years.
Explain how accounts receivable changed from previous years.
Analyze the financial obligations of St. Anthony Medical Center and their implications for the upcoming year.
“Analyze” means to examine methodically and in detail the constitution or structure of something (especially information), typically for purposes of explanation and interpretation.
Adhere to the rules of grammar, usage, and mechanics.
“Grammar” refers to the basic rules for how sentences are constructed and how words combine to make sentences (for example, word order, case, and tense).
“Usage” refers to correct word choice and phrasing, particularly with regard to the meanings of words and phrases.
“Mechanics” refers to correct use of capitalization, punctuation, and spelling.
Apply APA formatting to in-text citations and references.
Be sure to include a separate references page.
Some questions to consider that may help you organize your analysis are:

Do assets exceed liabilities?
What does this tell you about the financial position of St. Anthony Medical Center?
How has the financial position of St. Anthony Medical Center changed since last year?
How has it changed since the year prior?
How have the accounts receivable changed from previous years, and what does this tell you?
Using the balance sheet, what financial obligations does St. Anthony Medical Center need to consider in the upcoming year?
The goal of this analysis is to create an accurate picture of the financial trends for St. Anthony Medical Center, its current financial obligations, and how the upcoming fiscal year projects in light of this information.

Analysis of the Income Statement
This part of the assessment will focus on analyzing the income statement for St. Anthony Medical Center. Relevant scoring guide criteria:

Analyze patient revenue compared to previous years and the implications for the financial health of St. Anthony Medical Center.
Adhere to the rules of grammar, usage, and mechanics.
Apply APA formatting to in-text citations and references.
Some questions to consider that may help you organize your analysis are:

Has patient revenue increased or decreased from previous years?
What could this indicate about the financial position of St. Anthony Medical Center?
The goal of this analysis is to create an accurate picture of trends tied to the overall financial health of St. Anthony Medical Center.

Create multiple charts using Power BI as part of your continued analysis to help the superstore grow its business through improved operations and sales.

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MBA 504 Module Seven Power BI Assignment

Since visualization plays an important role in business communication between consultants and stakeholders, Power BI is a popular tool to use with Excel data analysis worksheets. In this scenario, you will continue to work as a business consultant trainee with the superstore client.

Your vice president of operations has advised you to use Power BI to re-create multiple charts that you initially generated in Module Two (included in excel attached). Remember that the superstore is interested in whether specific trends are identified that can help grow its business through improved operations and sales. The superstore uses Power BI as its main data visualization tool; therefore, you believe that using this tool will help you communicate your analysis in a familiar way and result in more meaningful analysis.

Prompt
Your task is to create multiple charts using Power BI as part of your continued analysis to help the superstore grow its business through improved operations and sales. Follow the directions in the Module Seven Power BI Assignment User Manual to create a trend chart and a column chart in Power BI.

Create a trend chart to represent the subcategories of the data.
Use Power BI on the virtual desktop infrastructure (VDI) to complete this step.
Use the Superstore Excel Workbook available to you on the VDI.
Re-create a trend chart from your completed Data_Visualization worksheet.
Articulate and appropriately label the chart you created in Power BI.
Take a screenshot of the chart, paste it in a Microsoft Word document, and convert it into a PDF.
Name the PDF as follows: Power_BI_Chart3.
Create a column chart to represent the subcategories of the data.
Use Power BI on the VDI to complete this step.
Use the Superstore Excel Workbook available to you on the VDI.
Re-create a column chart from your completed Data_Visualization worksheet.
Articulate and appropriately label the chart you created in Power BI.
Take a screenshot of the chart, paste it in a Microsoft Word document, and convert it into a PDF.
Name the PDF as follows: Power_BI_Chart4.

Guidelines for Submission
Submit each Power BI chart screenshot in a PDF format. Name the charts as instructed in the prompt: Power_BI_Chart3 and Power_BI_Chart4.