FINC 431 Finance: Assignment

The assignment for Thursday, April 5, is to do the following problems from Chapter 13 Risk and Capital Budgeting: 1, 3, 8, 10, 12, 13, 15, 22, and 23.

In addition, we will have some lab time so that each group can calculate its stock "beta."

Market Quote

"A bull market tends to bail you out of your mistakes. Conversely, bear markets make you pay for your mistakes." (Richard Russell)

DJIA Monthly Gains

The following chart comes to us from "Chart of the Day." This chart illustrates the DJIA's performance for each calendar month since 1950 (blue columns) and 1980 (gray columns). What does the chart demonstrate? Well, while the strongest month for stocks, as measured by the DJIA, has historically been November or December, April has tended to be the second strongest month of the year. Bring it on! Oh, you may want to go back and review the Halloween Indicator that was posted on October 26, 2006.

MBA 642: Yen Carry Trade

You borrow 1000 yen at 1%. You redeploy the yen into dollars to purchase TSY securities that are yielding 5%. At the time the trade is instituted, $1 = ¥118. One month later $1 = ¥100. What are the financial ramifications of the trade? That is, provide me with the return on your investment. Email your results to me by Monday, April 2.

MBA 642 Financial Management: April 3 Assignment

The assignments for April 3, 2007 are as follows:
1. Calculate the "Forward Looking Market Risk Premium" for your stock.
2. Determine the price set-up for your stock using "Technical Analysis."
3. Chapter 12 Capital Budgeting (Problems 1, 2, 3, 5, 7, and 12)

MBA 642 Financial Management: Assignments

For Tuesday, March 27, your assignments are as follows:
1. Chapter 8 Analysis of Financial Statements (Problems 3, 4, and 5)
2. Chapter 10 Determining the Cost of Capital (Problems 1, 2, 3, 5, 6, 9, and 10). In estimating the risk-adjusted rate of return, our authors use the rate on the 10-Year TSY Note as the risk-free rate of return. Why? What is the rationale for using the 90-Day TSY Bill rate as the risk-free rate? What is the appropriate "Market-risk Premium" to use? Explain. Review "Estimating Market Risk Premium" on pages 324-326, especially "Forward-looking Risk Premiums.
3. Market Bounce Data: $SPXA50 (Level 100?), 10-day MA of $CPCE (Range .72 to .75?), and 60-day MA of $CPC (Level of 1.05+)
4. Technical Analysis: Price Set-ups for TLT
5. Beta Analysis: Group Endeavor
6. Million Dollar Challenge Update

FINC 431 Finance

For our next class session on March 29, be prepared to discuss the following items:
1. Read pages 359-366 of your text on the "Capital Asset Pricing Model (CAPM) and Securities Market Line (SML).

2. Read Chapter 13 on "Risk and Capital Budgeting."

Have a great Spring Break!

Market Bounce! From What Level?

The following three indicators have provided levels where the markets have bounced after going through corrections:
1. The first is the number of S&P 500 stocks above their 50-day MA ($SPXA50). Levels of 100 or lower are usually associated with market lows. As of Friday, March 2, it stood at 170.

2. The 10-day MA of the CBOE Options Equity put/call derivative indicator ($CPCE) has been good at identifying bottoms at levels between .72 to .75. As of Friday, March 2, it stood at .73.

3. The 60-day MA of the CBOE Options Total Put/Call derivative indicator ($CPC) will "flash" a bottom above 1.05. As of Friday, March, it stood at .94.

Will these indictors "flash" a buy this time? Time will tell!

MBA 642 Financial Management: Assignments

For Tuesday, March 6, the assignments are as follows:
1. Chapter 4 (Bonds) -- Problem 14
2. Chapter 7 (Financial Accounting) -- Determine the "Free Cash Flow" for AAPL. Bring to class the financial statements for AAPL.
3. Chapter 5 (Basic Stock Valuation) -- Problems 2, 3, 4, 5, 6, 9, and 11
4. Be prepared to discuss the investment events of the past week and its significance, if any. Would you be a buy/seller of TLT and/or IWO? Check the chart postings on the blog for assistance with this question.
5. Portfolio Challenge (CNBC)
6. Calculating the Odds of a Recession: Go to the following site that is entitled "Political Calucations" and make you forecast. Use the data from Bloomberg in making your forecast. This is a very interesting exercise.

DJIA Performance: Average Third Year of Presidential Cycle

Tuesday’s market plunge of over 400 Dow points has drawn a lot of attention from the media. However, on a relative basis the decline was 3.3%, which, in fact, was the first significant decline since this “bull” rally started approximately five years ago. Typically, corrections during bull markets are anywhere from 10% to 12%. This 3% decline is nowhere near other bull market corrections. Don’t let all the media hype about this correction lose site of the fact that we are still in a bull market.

Look at above chart and recognize that two of the best performing months are March and April during the third year of the Presidential Cycle. Also, go back and revisit the “Halloween Indicator.”

Now, at what levels on the DJIA and S&P 500 will negate or call into question this current bull market? For the DJIA, the level is 11,783, or 4.5% from the current level. For the S&P 500, the level is 1,358 or 3.2% from the current level. At these levels, I would definitely become concern.