Wachowicz's Web Workout WEB EXERCISES FOR DISCERNING FINANCE STUDENTS

### PART II: VALUATION Chapter 4: The Valuation of Long-Term Securities Visit Wachowicz's Web World

 Exercise 4.1a Bond Valuation

The Bond Calculator will help you to figure out the intrinsic value of a bond that pays interest semiannually.

Use the Bond Calculator to determine the intrinsic value of a 10 percent coupon bond that has exactly 12 years to final maturity if your nominal annual required return (yield) is 14 percent.
http://www.calculator.com/calcs/bondcalc.html

Q. What answer do you get using the Bond Calculator and how does this compare with the answer found on page 76 in the text (or page 74, if you are using the 11th edition of the book)? (The dollar difference -- caused by rounding error -- between the two answers should be quite small.)

 Exercise 4.1b Bond Valuation

The Web sites used in this exercise use Java Applets and Javascript.

The Bond Calculator will help you to figure out the intrinsic value of a bond that pays interest semiannually.

You should be able to answer the following question by correctly using the Bond Calculator to determine the intrinsic value of a 10 percent coupon bond that has exactly 12 years to final maturity if your nominal annual required return (yield) is 14 percent.

Q. What answer do you get using the TVM Calculator and how does this compare with the answer found on page 76 in the text (or page 74, if you are using the 11th edition of the book)? (The dollar difference -- caused by rounding error -- between the two answers should be quite small.)

 Exercise 4.2a Yield to Maturity (YTM) on Bonds

The Yield to Maturity Calculator will help you to determine the "annualized" (nominal annual) YTM of a bond that pays interest semiannually. This "annualized" YTM is found by first determining the semiannual YTM, and then doubling that figure. This is exactly what bond traders do in calculating a YTM.

Use the Yield to Maturity Calculator to determine the YTM of an 8 percent coupon bond that has exactly 10 years to final maturity, a current selling price of \$935, and pays interest semiannually.
http://www.investopedia.com/calculator/AOYTM.aspx

Q. What is the bond's yield to maturity?

 Exercise 4.2b Yield to Maturity (YTM) on Bonds

The Web sites used in this exercise use Java Applets and Javascript.

The Bond Calculator will help you to determine the "annualized" (nominal annual) YTM of a bond that pays interest semiannually. This "annualized" YTM is found by first determining the semiannual YTM, and then doubling that figure. This is exactly what bond traders do in calculating a YTM.

You should be able to answer the following question by correctly using the Bond Calculator to determine the YTM of an 8 percent coupon bond that has exactly 10 years to final maturity and a current selling price of \$935.

Q. What is the bond's yield to maturity?

 Exercise 4.3 Dividend Discount Models

The Financial Pipeline web site covers several "valuation" topics in sections devoted to Stocks and Bonds. The Fundamental Analysis discussion of stocks explains three alternative dividend discount models used to determine the intrinsic value of a share of stock: 1) the constant (or no-growth) dividend model; 2) the constant growth dividend model; and 3) the two-stage (or two-phase) dividend growth model.
http://www.finpipe.com/
http://www.finpipe.com/equity/
http://www.finpipe.com/fixed.htm
http://www.finpipe.com/equity/fundanl.htm

Q. According to the folks at Financial Pipeline, under what conditions would it be appropriate to employ the various dividend discount models mentioned above?