Rationale for stock exchange listing
This discussion question is on Page 312 in your text. Please go to LO2, #2. Please read and answer the question. Based on your understanding of the chapter, why do certain companies choose the exchanges that they are on.
* Choosing appropriate Stocks
This discussion question is on Page 343 in your text. Please go to LO3, 4 #5. Please read and answer the question. Based on your understanding of the chapter, what would you do if you had the type of inheritances suggested in the reading?
*Assignment 6.1
Question L04, # 7
On Page 312 of your text, do question L04, #7. It asks you to interpret Stock Report Information from a Value Line Report in your text. If the Value Line Report appears hard to read, just enlarge the text on your screen and you should be able to read it.
*Assignment 6.2
On Page 343 of your text, do question L01, 2, #1. It asks you to rank investments by expected returns. Use the formula in the book on page 320.
I have included an Excel Spreadsheet at the end of this module that has a formula built in for you. You will need to put in the required information and the spreadsheet will calculate the yield for you. Make sure you understand the components for the test.
Author’s Name
Professor’s Name
Course Number
Date of Submission
Rationale for Stock Exchange Listings/ Choosing Appropriate Stocks
Rationale for stock exchange listings
Why do you suppose that well-known companies such as Apple, Starbucks, and Facebook prefer to have their shares traded on the NASDAQ rather than on one of the major listed exchanges, such as the NYSE (for which they’d easily meet all listing requirements)? What’s in it for them? What would they gain by switching over to the NYSE”?
Because these companies are mostly tech companies that focus on growth, NASDAQ, with a reputation for fast-growing companies, is most preferred. Their goal is to maintain low capital by keeping costs low, and hence fuel growth. With such an objective, NASDAQ is more cost-efficient. NASDAQ is apparently better with the increase, upside potential because it offers more volatility and rapid price movements potential. As for NYSE, the perception of listing a company there is prestige through its expensive. The shares offered here are more stable and established.
Choosing appropriate stocks
Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the next 15 to 20 years, and you’re willing to tolerate a “good deal’’of risk.
- What types of stocks (blue chips, income stocks, and so on) do you think you’d be most interested in, and why? Select at least three types of stocks and briefly explain the rationale for selecting each.
Given these specifications, stocks of interest will be Blue-chip stocks, Growth stocks, and Tech stocks. Blue-chip stocks fetch good yields and have growth potential. They are attractive and can help build capital.
Growth stocks have shown consistency in high growth rates in earnings and operations. They have a progressive growth rate and can double that of common stocks.
On the other hand, tech stocks are given by companies based on technologies, such as internet services, software, wireless communication, hardware, data storage devices, computers, and so on. Tech stocks can be considered growth stocks, blue-chip stocks, speculative stocks and so on. Despite their considerable risks, they have large returns that can help build capital.
- Would your selections change if you were dealing with a smaller amount of money—say, only $50,000? What if you were a more risk-averse investor?”
$50,000 is considered a small amount of money and should be invested in investments that preserve capital. Defensive stocks would be preferable though tech, growth, and blue-chip stocks can also work. Defensive stock prices and returns are stable and can stand a period of low economic activity, thus preserving capital. Bonds can also be considered to diversify the investment and reduce risks. High risk-averse investors can also consider US Treasury Bills and high-grade bonds for the bigger part of the portfolio and less in stocks. Diversification is important because it helps in risk reduction hence greater chances of capital preservation.
Assignment 6.1
“Interpreting stock report information. Using the Value Line Investment Survey report in Exhibit 11.5, find the following information for Apple.
- What was the amount of revenues (i.e., sales) generated by the company in 2017?
Apple generated $229,234 in 2017
- What were the latest annual dividends per share and dividend yield?
The annual dividend per share was 2.40
The dividend yield was 1.8%
- What is the earnings per share (EPS) projection for 2019?
EPS projected for 2019 was 12.85 per share
- How many shares of common stock were outstanding?
Outstanding common stock was 5126.2 in 2017 million and 4700 million in 2019
- What were the book value per share and EPS in 2017?
The book value per share was $26.23 per share in 2017, whereas EPS was $9.21 per share.
- How much long-term debt did the company have in the third quarter of 2018?”
The long term debt in 2018 is $100,000 million, though in the capital structure box dated march 3rd, 2018, the value is indicated as $101362, making the $100,000 million more of a round figure.
Assignment 6.2
Ranking investments by expected returns
What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.
The expected return is the rate of interest earned on an investment. It helps in comparing different stocks. The formula or financial calculator given in Excel will help in calculating the expected returns.
- Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share).
Expected returns = 26.67%
- Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero).
Expected returns = 42.85%
- Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held”
Expected returns = 5%
b being the highest at 42.85%, it should be selected as the best option.
Works Cited
Gitman, L. J., Joehnk, M. D., & Billingsley, R. (2015). PFIN 4. Cengage Learning.