TRIDENT FIN301 Module 3 SLP Latest 2019 January Question # 00597687 Course Code : Fin301 Subject: Business Due on: 02/04/2019 Posted On: 02/04/2019 11:05 AM Tutorials: 1 Rating: 4.9/5

FIN301 Principles
of Finance

Module 3 SLP

RISK, RETURN, AND STOCK VALUATION

For your Module 3 SLP, we will go back to looking at
information about the stock price and stock returns of your four companies.
Look up the following information about your four companies on Yahoo Finance,
Investing.com, Morningstar, or a similar page:

a. The
current stock prices

b. The stock
prices five years ago

c. The
dividend yield for each stock

d. The beta
for each stock

e. Look up
the current three-month treasury bill rate on Fidelity’s Fixed Income page

Now do the following calculations with this information:

1. Calculate
the average annual capital gain or loss (stock price change) over the last five
years. Calculate the percentage change from five years ago, and divide by five.
For example, if the stock price increased from 50 to 100 in five years, the
percentage increase would be 100% and the average annual gain would be 20% (100
divided by 5). Which of these companies has the highest or lowest capital gain?

2. Now
estimate the average total return, which is the capital gain plus dividends. If
the dividend yield is 2%, then the average total return would be 22% in the
example above. Which of these four companies has the highest or lowest total
return? Does the order change?

3. Finally,
calculate the Treynor Ratio. First, take the total return for each of your four
companies and subtract the three-month treasury bill rate (the “risk-free
rate”). Then divide this by the beta of each company. This ratio is a measure
of the risk-adjusted return of each stock. The higher the return, the higher
the Treynor Ratio. But the higher the beta (which is a measure of risk), the
lower the Treynor Ratio. Which of your companies has the highest or lowest
risk-adjusted return? Does the order change from what you found in 1) and 2)
above?

Submit a one-page memo in Word summarizing your findings,
and include an Excel file with your data and calculations.

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 “Writing Style Guide,” which is
found under “My Resources” in the TLC Portal.