This project is closely aligned with the course outcomes and Finance program objectives. Completion of this project can be used as part of a portfolio to show potential employers that you are skilled at performing company valuations and financial statement analysis. Consider adding these skills to your résumé.
Part 1: Bonds Performance Analysis and Interest Rates Trends (40% of the project grade).
Based on the course material presented in week 3.
The information on bonds can be found on the website the Bond section of the FINRA Market Data Center. To find the information on bonds, click on Search in the middle of the screen (under Market Center Bond Guide). Under Quick Search type the Issuer Name and Symbol fields, then click Show Results.
If you cannot find a particular bond on the FINRA site, check the Bonds page on Markets Insider. To find the information on bonds, scroll down the page, type the name of the company in the window under Bond Finder, then click on the magnifying glass.
Find the quotations of five to eight corporate bonds that contain a price under “Last Sale” and Ratings of Moddy’s and Standard & Poor’s (S&P). Not all companies list their bonds on this website. You can use the bonds of the same company or choose different companies. Choose the bonds with different maturities, different coupon payments, and so on. Be creative!
- To grade your project your professor needs to see the information on the bonds you chose. Copy the bonds quotations into your project.
- What were the last prices of the bonds (listed in the Last Sale column)? What does this price mean?
- Assume that par value of the bond is $1,000.
- How much will the investor pay for the bond purchased at the price listed in the Last Sale column?
- Calculate the annual coupon interest payments.
Show your work in your project.
- The YTM is listed in quotations of the bonds (in the Last Sale column, Yield). What does it mean? (No calculations are required for this section).
- Calculate the Macaulay duration and modified duration of these bonds. Use an online Duration calculator. Present the results of your calculations in your project. How will changes of interest rates affect the bonds’ prices?
- Using the forecast of interest rates (short-term and long-term) that you found in Stage 1 of the project, create the forecast of the bonds’ prices. Explain your results.
- Write at least two pages of the analysis of the bonds. Answer the following questions, explaining each answer.
- If you are going to buy a bond, which bond would you choose? Why?
- What connections are there among economic trends analysis, bond market performance, and investment decisions? Discuss these connections.
- Take a look at the balance sheet and income statement of the companies. What data or ratios support your decision to buy this bond or not?
Part 2: Stock Market Indexes (40% of the project grade).
Based on the course material presented in week 5.
In this part of the project, we will investigate three stock market indexes: S&P500, Dow Jones Industrial Average (DJIA), and NASDAQ Composite.
From the Yahoo! Finance home page:
- Click on S&P 500 on the front page. The original graph shows the index for the current business day.
- Change the view to the Full screen.
- Using the Calendar change the dates from 01/03/2000 to the last available business day in 2022.
- Using the +Comparison button above the graph, add DOW and NASDAQ to the graph to show the percentage change for each day relatively to the first day (01/03/2000), and the level of each index.
Write a report (minimum two pages double-spaced) analyzing the results that you received. At a minimum, respond to all of the following:
- What type of Indexes are the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite?
- What factors influence the performance of these indexes?
- Is there a difference between the performances of S&P 500, DJIA, and NASDAQ composite over these twenty-two years? If so, explain the factors that contribute to those differences.
- Using the forecast of economic conditions and trends, you found in part 1 of the project, what tendency of the levels and percentage changes of these indexes do you expect to see in the short-term and in the long-term?
- Compare the movement of these stock market indexes to the yield curve’s level and spread that you evaluated in Stage 1 part 2 of the project. Can the yield curve level and spread be considered as a forecaster of future economic conditions, including recessions? You may want to incorporate more data for the yield curves to support your answer.
- Will these findings change your decision to buy the bond you chose in part 1 of this project versus investing in stock market or in both? Explain your answer.
Part 3: Reflection (5% of the project grade).
Write a paragraph in your own words reflecting on what they learned from the assignment and how you think you could apply what they learned in the workplace or in their everyday life.
