FINA 301 Week 3 Module 3: Valuation of Bonds and Stock | Finance Assignment Help | Franklin University 

Module 3: Valuation of Bonds and Stock

Upon successful completion of this module, the student will be able to:

1.    Differentiate between primary and secondary financial markets and between money and capital markets.

2.    Identify different types of financial institutions and their services.

3.    Analyze specific factors that influence interest rates.

4.    Discuss different theories that explain the shape of the term structure of interest rates.

5.    Calculate the market value of a straight bond.

6.    Compute dividend, capital gains, and the total yield on the stock.

7.    Explain the relationship between bond prices and interest rates.

8.    Identify terminology as it is applied to bonds and common stock.

9.    Apply models to determine the intrinsic value of a stock.

10. Apply stock valuation techniques to real financial data utilizing an online database of financial information.

Chapter 6 provides an introduction to financial markets and institutions. The distinctions between primary and secondary financial markets and between money and capital markets are drawn. Various financial instruments are next classified according to their market type and time to maturity. Other financial markets-such as foreign exchange markets and derivative securities markets-are also introduced. The types and primary economic functions performed by financial institutions are examined. The chapter also examines interest rates and the factors that influence their determination, including the real rate of interest, inflation, default risk, liquidity risk, and term to maturity. The discussion concludes with an examination of theories that seek to explain the yield curve or term structure of interest rates, i.e., the comparison of yields on securities, assuming all characteristics except term to maturity are the same.

Chapter 7 examines corporate bonds, their characteristics and how they are valued. In studying bond valuation, the student will learn about the primary factors that determine a bond's price, including a bond's coupon rate (the rate at which annuity interest payments are made), term to maturity, and level of risk. Ultimately, students will apply Time-Value-of-Money techniques for single sum and annuities to compute the market value of a bond.

Chapter 8 discusses the characteristics of equity investments or stock, including both common and preferred stock. Students will study the importance of dividend payouts, investors' expected returns, and growth assumptions-either constant or variable-to the valuation of common stock. In addition to cash flow-based valuation techniques, relative valuation methods utilizing comparative ratios, such as a firm's price-earnings (P/E) ratio, are examined.