Finance Major Assignment- investing a stock
6-10 pages. MIN 6. MAX 10.You are a newly hired financial analyst for a mutual fund called Wealth Grower. Your fund manager wants to invest in a stock from the S&P500 Index but needs you to do some research and then ultimately make a recommendation on whether this stock is appropriate to invest in or not. Write a report to your fund manager answering Sections A to D, which includes a final recommendation.Section A: [15 marks]1. Select a publicly listed company from the S&P500 Index that has at least 10 years of dividend history (Coca-Cola is NOT allowed because it has been used throughout this course as the example company). Justify your choice.2. Create a table of the chosen company’s current “stock quote” with the following characteristics: 1) Current Price 2) Market Cap 3) Beta 4) PE Ratio 5) EPS 6) Earnings Date 7) Forward Dividend and Yield 8) Ex-Dividend Date. Interpret and briefly explain each characteristic from this table.3. List the Global Industry Classification Standard (GICS) sector, industry, and sub-industry for your chosen company. List one other public company that is in the same sub-industry as your chosen company and briefly describe its operations.Section B: [25 marks]4. Find the annual returns for the S&P500 Index from 1990-2019. Calculate both the arithmetic and geometric average annual return and standard deviation of annual returns over this time period.5. List the current U.S. Treasury Bill rates of these maturities: the 1-year, 5-year, 10-year, and 20-year. List the current Moody’s Seasoned Aaa Corporate Bond rate, which is a bond index for the highest grade corporate bonds.6. Using the CAPM, calculate the required rate of return of your company using all the different rates identified in part (5) as proxies for the risk-free rate. Use your annual return calculations from part (4) as the expected market return. Present your results in a table.7. Calculate the annual returns of your chosen company from 2011-2019. Be consistent with dividend timing. Calculate the arithmetic and geometric average annual return and standard deviation of annual returns from 2011-2019. Interpret these numbers.8. Compare the results from part (7) with the average annual returns and standard deviations for the S&P500 Index. Discuss and relate this to the chosen company’s beta.Section C: [25 marks]9. Estimate the growth rate of your chosen company in the following three ways:a. Calculate the annual growth rate for dividends from 2011-2019. Calculate the arithmetic and geometric average annual growth rate of dividends from 2011-2019.b. Calculate the annual growth rate of net income from 2011-2019. Calculate the arithmetic and geometric average annual growth rate of net income from 2011-2019.c. Use the formula g = b * ROE using the financial statements in 2019.10. Using the Gordon Growth Model and the 1-year forward dividend estimate, calculate the intrinsic value of your chosen company. Use an appropriate required rate of return and growth rate. Justify your choices and all your assumptions.Section D: [25 marks]11. Using the analysis from Sections A-C, make a detailed recommendation for this stock (the classic recommendation is: buy, sell, or hold). In your recommendation, evaluate which estimates are useful to the recommendation. Along with your valuation model, you can use any information about the company, industry, and economy as well to justify your recommendation.Presentation and overall style of the report [10 marks]Important Information: _The following knowledges will help you get started with the Assignment: Stocks,GGM, Financial Statements. _Avoid choosing companies with dramatic changes to their capital structure (e.g. large mergers, significant change in business operations, etc.) _List and date ALL your data sources. Depending on the day and time you collect the data, the data may be different (e.g. The stock price for Coca-Cola is $50.03 (October 18th).) _Be consistent with the timing and horizon of all the financial data of your chosen company. _A complete answer includes a detailed and thorough explanation. _Ensure the results are presentable and professional.Formatting and Presentation:The page limit for the report is 10 pages with 6 being the minimum.
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