Stocks Valuation questions

Respond to the questions and complete the problems.

Questions

In a Word document, respond to the following. Number your responses 1–3.

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  1. Describe the rights and advantages belonging to shareholders
  2. Explain the differences between the Standard and Poor’s 500 Index and the Dow Jones Industrial Average. Which is a better measure of stock market performance? Why?
  3. Describe the differences between common stock and preferred stock.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

Problems

In either a Word document or Excel spreadsheet, complete the following problems.

  • You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.
  • If you choose to solve the problems algebraically, be sure to show your computations.
  • If you use a financial calculator, show your input values.
  • If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

Compute the following:

  1. Imagine that on June 4, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day’s close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4.
  2. The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22.
  3. HiTech, Inc.’s growth for the future is forecasted to be a constant 10 percent. HiTech’s next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent.
  4. Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent.
  5. HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price.

Stocks Valuation Scoring Guide

CRITERIA NON-PERFORMANCE BASIC PROFICIENT DISTINGUISHED
Describe the rights of a shareholder. Does not describe the rights of a shareholder. Describes the rights of a shareholder but omits key elements. Describes the rights of a shareholder. Analyzes the rights of a shareholder and connects the analysis to relevant real-world situations.
Describe the advantages of stock ownership. Does not describe the advantages of stock ownership. Describes the advantages of stock ownership but omits key elements. Describes the advantages of stock ownership. Analyzes the advantages of stock ownership and connects the analysis to relevant real-world situations.
Explain the differences between key stock market measures. Does not explain the differences between key stock market measures. Explains the differences between key stock market measures but omits key elements. Explains the differences between key stock market measures. Analyzes the differences between key stock market measures and connects the analysis to real-world situations.
Calculate the percentage one-day return in the Dow Jones Industrial Average. Does not calculate the percentage one-day return in the Dow Jones Industrial Average. Calculates the percentage one-day return in the Dow Jones Industrial Average using inaccurate or incomplete data. Calculates the percentage one-day return in the Dow Jones Industrial Average. Calculates the percentage one-day return in the Dow Jones Industrial Average and explains the calculation.
Calculate how much money is needed to buy a specific amount of stock. Does not calculate how much money is needed to buy a specific amount of stock. Calculates how much money is needed to buy a specific amount of stock using inaccurate or incomplete information. Calculates how much money is needed to buy a specific amount of stock. Calculates how much money is needed to buy a specific amount of stock and explains the calculations.
Calculate the value of a share of stock with constant growth. Does not calculate the value of a share of stock with constant growth. Calculates the value of a share of stock with constant growth using inaccurate or incomplete information Calculates the value of a share of stock with constant growth. Calculates the value of a share of stock with constant growth and explains the calculations.
Calculate the value of a share of preferred stock. Does not calculate the value of a share of preferred stock. Calculates the value of a share of preferred stock using inaccurate or incomplete information. Calculates the value of a share of preferred stock. Calculates the value of a share of preferred stock and explains the calculations.
Calculate the price of a share of stock using a stock’s earnings per share and P/E ratio. Does not calculate the price of a share of stock using a stock’s earnings per share and P/E ratio. Calculates the price of a share of stock using a stock’s earnings per share and P/E ratio using inaccurate or incomplete information. Calculates the price of a share of stock using a stock’s earnings per share and P/E ratio. Calculates the price of a share of stock using a stock’s earnings per share and P/E ratio and explains the calculations.

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