Finance Commercial Bank Management 6

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FIN 4324 Assignment 6

Name:

 

1. Suppose that Florida Bank has recently granted a loan of $2 million to Oyster Farms at

LIBOR plus 0.5 percent for six months. In return for granting Oyster Farms an interest-

rate cap of 6.5 percent on its loan, this bank has received from this customer a floor rate on

the loan of 5 percent. Suppose that, as the loan is about to start, LIBOR declines to 4.25

percent and remains there for the duration of the loan. How much (in dollars) will Oyster

Farms have to pay in total interest on this six-month loan with floor and without floor?

How much in interest rebates will Oyster Farms have to pay due to the fall in LIBOR?

 

 

 

2. What does securitization of assets mean?

 

 

3. What kinds of assets are most amenable to the securitization process?

 

 

4. What advantages does securitization offer to the lending institutions?

 

 

5. What was the motivation for creating collateralized mortgage obligations (CMOs) and

why is the creation of CMOs important for the market and/or investors?

 

 

6. What is a credit swap? For what kinds of situations was it developed?

 

 

7. Why is a credit default swap (CDS) useful?

 

 

8. What are the differences between a CDS contract and a conventional insurance contract?

 

 

 

 

 

2

 

9. Commercial banks have a unique ability to hedge against systematic liquidity shocks.

Discuss banks’ advantage in hedging liquidity risk relative to other financial institutions.

[Hint: The key point would be “natural hedge against liquidity risk”, so try to explain

this.]

 

[10-12] Assess the following bank’s liquidity situation:

 

 

 

 

 

 

 

10. Does this bank have any core deposits? If so, how much?

 

 

11. What is this bank’s financing gap? Briefly interpret this number.

 

 

12. Does this bank have any purchased liquidity? If so, how much?

 

 

 

13. BASEL III has proposed two new liquidity measures. What are they? Explain both of

them briefly in plain English.

 

 

 

 

14. BASEL I introduced risk-based capital ratios. What were the major problems with those

ratios? As U.S. Congress was not satisfied with the capital standards proposed by BASEL

I, the U.S. bank regulators included another capital measure. What was it?

 

Reserves at Fed $2,800 Fed funds purchased $3,500

Other cash $0 Demand deposits $15,000

U.S. Treasury securities $1,800 CDs less than $250,000 $5,000

Loans $27,000 Large CDs $3,000

Other assets $400 Equity $5,500

$32,000 $32,000

 
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Common Stock Valuation

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CHAPTER 9 Common Stock Valuation

Timothy R. Mayes, Ph.D. Metropolitan State University of Denver

 

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

What Is Value?

The term “value” has many different meanings depending on the context in which it is used

For our purposes, there are four important types of value:

Most generally, value can be defined as the amount that a willing and able buyer agrees to pay for an asset to a willing and able seller

Book value is the original purchase price of an asset less its accumulated depreciation

Intrinsic value is the value of an asset to a particular investor as determined by calculating the present value of the expected future cash flows at that investor’s required rate of return

Market value is the price of an asset as determined in a competitive marketplace

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Fundamentals of Valuation

As noted earlier, the intrinsic value of an asset is the present value of the expected future cash flows provided by the asset

To determine the value of a security, then, we must first determine three things:

What are the expected future cash flows?

When will the cash flows occur?

What is the required rate of return for this particular stream of cash flows?

The value of the asset can be compared to its market price to determine whether the asset should be purchased, or not

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Determining the Required Rate of Return

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Valuing Common Stocks

There are many possible formulas that can be used to value common stocks, but most of them are simply present value models

The difference between them is in the pattern of future cash flows that they assume, or the particular cash flow that they use (e.g., dividends or free cash flow)

We will look at several discounted cash flow models:

The Constant-Growth Dividend Discount Model

The Two-Stage Growth Model

Three-Stage Growth Models

The Earnings Model

The Free Cash Flow Model

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Constant-Growth Dividend Discount Model

Note that since the growth rate is constant, if we know the most recent dividend then we know all future dividends

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

The Two-Stage Growth Model

Many companies can’t be expected to grow at a constant rate forever

Some of these may be currently growing at a unsustainably high rate now, but can be expected at some point to see their growth slow to a long-run constant rate

The two-stage dividend discount model allows for these two stages of growth:

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Three-Stage Growth Models

There are several models that allow for three stages of dividend growth:

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Alternative Discounted Cash Flow Models

The Free Cash Flow Model discounts the expected future free cash flows to get the value of the firm, and then subtracts the value of debt and preferred equity to arrive at the market value of equity (here we are assuming a constant growth rate):

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Earnings Model Example

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Relative Value Models

Relative value models provide a way to value a stock relative to other similar stocks using valuation ratios such as the Price to Earnings (P/E) ratio

These models have two major advantages:

They are easy to use

They can be used to value stocks for which the DCF models fail

The most common relative value model is based on the P/E ratio

The idea is to identify a “justified” P/E ratio and to multiply that by expected earnings per share

If earnings are negative, we could use the price to book or price to sales ratios

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Preferred Stock Valuation

Preferred stock is a kind of hybrid security

It represents an ownership claim on the firm’s assets, like common stock

Holders of preferred stock do not benefit from increases in the firm’s earnings and they generally cannot vote in corporate elections, like bonds

Further, like a bond, preferred stock generally pays a fixed dividend payment each period

There is no maturity date, so the life of a share is effectively infinite

Since preferred stock is expected to pay a constant dividend forever, we can simply find the present value of an infinite stream of constant cash flows:

Which is refreshingly simple given some of the previous formulas

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Excel Formulas

FAME_TwoStageValue

FAME_ThreeStepValue

FAME_ThreeStageValue

FAME_HModelValue

 

© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

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BM410 Lesson 8 Exam SCORE 95 PERCENT

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Which type of criterion assesses improvements in certain characteristics of salespeople that are related to successful performance in the sales job?

Question options:

  

Profitability

 

Productivity

 

Professional development

 

Behavioral

 

Question 2

The more a salesperson performance evaluation system is behavior-based rather than outcome-based,

Question options:

  

the less likely that risk-averse   salespeople will be attracted, nurtured, and retained.

 

the more salespeople will have   reduced levels of intrinsic motivation.

 

the less salespeople identify with   and feel committed to the sales organization.

 

the less the need for using pay as   a control mechanism.

 

Question 3

Which one of the following evaluation procedures uses salespeople to identify important performance results and the critical activities and responses necessary to achieve these results?

Question options:

  

Graphic rating/checklist method

 

Team-evaluation consensus

 

Management by objectives (MBO)

 

Behaviorally anchored rating   scales(BARS)

 

Question 4

The mutual setting of well-defined and measurable goals within a specified time period is a concept incorporated into which type of performance evaluation method?

Question options:

  

Graphic rating/checklist method

 

Ranking method

 

Management by objectives (MBO)

 

Behaviorally anchored rating scale   (BARS)

 

Question 5

Practicality, a characteristic of salesperson performance evaluation methods, can be defined as

Question options:

  

the need for the measurement   instruments and evaluation process to be similar throughout the sales   organization.

 

the ability of the measure to   provide accurate assessments of the criteria they’re intended to measure.

 

the ability of the measure to meet   the needs of the sales organization.

 

the need for both sales managers   and salespeople to understand the entire performance-appraisal process and to   be able to implement the process in a reasonable amount of time.

 

Question 6

Usefulness, a characteristic of salesperson performance evaluation methods, can be defined as

Question options:

  

the need for the measurement   instruments and evaluation process to be similar throughout the sales   organization.

 

the ability of the measure to   provide accurate assessments of the criteria they’re intended to measure.

 

the ability of the measure to   provide information that is valuable to sales managers in making various   decisions.

 

the need for the measures to be   stable over time and exhibit internal consistency.

 

Question 7

Which of the following statements concerning performance management is false?

Question options:

  

Salespeople are compensated on the   value of their contributions to the <br /> organization’s success.

 

Salespeople assume responsibility   for their careers.

 

Sales managers act as partners in   the performance appraisal process.

 

Sales managers create development   plans for salespeople to follow.

 

Question 8

The initial use of the information provided by the various salesperson performance evaluation methods is

Question options:

  

to identify potential problems in   training.

 

to determine the absolute and   relative performance of each salesperson.

 

to identify areas where   salespeople need to improve for better performance in the future.

 

to use the information to improve   the overall operations of the sales organization.

 

Question 9

The results of salesperson performance evaluations can be used for all of these sales management purposes except to

Question options:

  

identify salespeople that might   need to be terminated and to supply <br /> evidence to support the need   for termination.

 

identify salespeople that might be   promoted.

 

assess the adequacy of a firm’s   sales management process and to provide <br /> direction for improved   performance and prescription for needed changes.

 

ensure that compensation and other   reward disbursements are consistent <br /> with actual salesperson   performance.

 

Question 10

When using a 360-degree feedback system, feedback may be obtained from

Question options:

  

oneself.

 

one’s sales manager.

 

customers or team members.

 

Any or all of the above.

 

Question 11

The dimensions of job satisfaction that the INDSALES scale attempts to measure include all of the following except

Question options:

  

company policy and support.

 

the job.

 

customers.

 

competitor sales jobs.

 

Question 12

A behavior-based perspective to evaluating and controlling salesperson performance

Question options:

  

focuses on objective measures of   results.

 

has very little monitoring or   directing of salespersons by sales managers.

 

incorporates complex and often   subjective assessments of salesperson characteristics.

 

may lead to a focus on short-term   outcomes.

 

Question 13

When attempting to use the diagnostic information provided by salesperson-evaluation methods, the major difficulty is in

Question options:

  

reviewing the performance of each   individual salesperson against each relevant criterion.

 

attempting to summarize the   results across all salespeople being supervised.

 

isolating the specific causes of   low performance.

 

determining which salespeople   aren’t meeting their sales quotas.

 

Question 14

In salesperson evaluations, which one of the following behavioral criterion do most sales organizations focus on?

Question options:

  

Number of demonstrations conducted

 

Number of required reports   submitted

 

Number of customer calls

 

Number of letters/phone calls to   prospects

 

Question 15

Which of the following statements regarding the use of outcome-based and behavior-based perspectives in the evaluation of salesperson performance is false?

Question options:

  

A review of current practice   indicates a tendency toward a <br /> behavior-based perspective.

 

Most sales organizations operate   somewhere between the two extreme positions.

 

The relative emphasis on   outcome-based and behavior-based measures <br /> depends upon   environmental, firm, and salesperson considerations.

 

A salesperson’s performance on   post-sale service is considered a <br /> behavior-based measure.

 

Question 16

The sample statement, “Management is progressive,” used in the INDSALES scale would be attempting to measure which dimension of job satisfaction?

Question options:

  

Pay

 

Promotion and advancement

 

Customers

 

Company policy and support

 

Question 17

Behaviorally anchored rating scales (BARS) are a unique evaluation procedure because they’re the only method that

Question options:

  

tries to link salesperson   behaviors with specific results.

 

tries to link salesperson   behaviors with promotability.

 

attempts to correlate   sales-training methods with sales results.

 

uses behavior to predict a   salesperson’s level of motivation.

 

Question 18

Which method of salesperson performance evaluation has been described as having problems related to the “halo effect”?

Question options:

  

Graphic rating/checklist method

 

Ranking methods

 

Management by objectives (MBO)

 

Behaviorally anchored rating   scales (BARS).

 

Question 19

All of the following are benefits of a 360-degree feedback system except

Question options:

  

it reduces assessment bias.

 

it detects barriers to success.

 

it eliminates sales manager   involvement.

 

it helps better understand   customer needs.

 

Question 20

Which of the following statements regarding the use of the scale termed INDSALES is false?

Question options:

  

It’s a scale for evaluating the   job satisfaction of salespeople.

 

In using the scale, salespeople   indicate their level of agreement with a <br /> number of statements   concerning their particular sales job.

 

The scale uses statements designed   to measure satisfaction in five <br /> general areas.

 

The answers salespeople give to   the scale statements are summed to form <br /> an overall salesperson   satisfaction score.

 
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Doc Daimler

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1-  Final Research Project

Each student will write a 20+ page research paper, modelled on the work available through the Library database from Standard and Poors’Net Advantage.  This paper will be an expansion of one of the Power Point and Word documents described above, and contain both qualitative and quantitative reasoning supporting the logic that this company should become part of our holdings.  This paper will be graded on the quality of the logic, quantitative and qualitative,

Pace University Lubin School of Business

Student Managed Investment Portfolio (SMIP)

Undergraduate Finance Elective

Fin 357 CRN #20086

Spring 2019

SYLLABUS

Text: (websites)

Yahoo!Finance. (user name: pacesmip; password: PLVpny2018)

Damodaran, Aswath; see Focused Valuation Spreadsheets from his home page

The Dark Side of Valuation also by Damodaran

Barron’s, Wall Street Journal

Standard and Poors’ Net Advantage (from Pace University Library site)

Moneychimp, YahooFinance, MSN, CNN Money, Stockalicious

Google Finance, etc.

Instructor:

Ronald Filante, Ph.D.

Associate Professor of Finance

Goldstein Academic Center, PLV: Suite 106; (914) 773-3708

[email protected]

Office Hours: Tues, Wed , Thursday 9 – 11 AM and by appointment

Meetings:

Thursdays 6:10 – 9:00 PM

Mortola Library (Smart Classroom)

Catalogue Description:

This course deals with the valuation of corporate securities, primarily stocks, for the purpose of making investment decisions for a Student Managed Portfolio funded by money donated and loaned to the University for this undertaking. Log into YahooFinance using the user ID pacesmip and the password PLVpny2018. See the portfolio “Spring 2019” for our current holdings. Students will learn how to incorporate macro-economic, firm and industry-specific data into discounted cash flow and relative valuation models. Although this is a Finance offering, students with diverse backgrounds and educational experiences are encouraged to enroll, since their perspectives are a valuable addition to those of the traditional finace major.

General Learning Goals (All BBA Programs)

1. Communications

2. Critical Thinking, Problem Solving and Decision Making

3. Interpersonal Interaction, Social Responsibility and Ethics

4. Global Perspectives

5. Quantitative Applications

Finance Major Goals

1. Demonstrate knowledge of financial management principles

2. Demonstrate knowledge of valuation and pricing techniques and their applications

3. Develop the ability to analyze and interpret financial data

4. Apply basic forecasting techniques using econometric models and financial and economic data

WRITING-ENHANCED COMPONENT

This is a writing-enhanced course that requires an effective amount of writing, in addition to exams, to help students learn course content. Formal writing elements, such as clear focus, good organization, development, and editing are considered in grading, as well as content. Students will receive detailed written handouts for each writing assignment, specifying criteria and clearly setting forth expectations. Students will receive feedback for revision on at least one writing assignment before it is graded. The writing in final drafts will be evaluated, along with content, based on evaluative criteria from a checklist or rubric.

Grading and Course Requirements:

Students enrolled in the course will be the investment managers for the University’s Student Managed Investment Portfolio. This portfolio was created on January 24, 2002 and has since that date made some 900 transactions. Thus you will inherit positions that others recommended and approved. Your first task will be to analyze each of these and make recommendations as to whether we should keep them, sell them, or add to the existing share balance. During the remainder of the semester you will recommend the establishment of new positions. Some students will also accompany me on March 28-30, 2019 where we we attend the Global Asset Management Education Forum , (GAME),. Pace will compete against 325 other SMIPs at that conference. The approximate weights in my grading process will be as follows.

1- Analysis of existing portfolio = 10%

2- Stock Screening Paper = 15%

3- Recommendations for new positions = 15%

4- Re-write of assignment #1 = 10%

5- Attendance, Participation & Commentary on others’ recommendations = 10%

6- Final Research Paper = 40%

Writing Enhanced Requirements

1- Analysis of Two Positions in Inherited Portfolio

Each student is assigned two positions and writes a short (4 page) presentation recommending a “buy”, “hold” or “sell” based on the relationship between the stock’s price and its “value”. The latter is calculated using a Capital Asset Pricing Model discounted cash flow analysis. This assignment will be collected on 2/14/19 and returned with suggested revisions. The final version is due on 3/7/19.

2- Stock Screening Exercise

Each student defines an applicable “style box” and generates a 25 security portfolio whose members satisfy the criteria that characterizes the style box. These range from portfolios emphasizing growth to those emphasizing value investing styles. The screening software is available on various sites including Yahoo, Google, CNBC. An accompanying 4 page essay describes the characteristics chosen and the parameters each student used to generate the qualifying stocks. For example a “value” investor might use Price /Earnings ratios less than 10, Price to Book ratios less than 2, with high liquidity. A “growth” investor might choose stocks with high recent earnings increases, high profitability, with low dividend payouts

3- Essay (5 pp Word doc.) and Power Point Presentation:

New Stock Recommendation

Each student recommends one or more new positions for the portfolio. The presentation is oral, accompanied by a Power Point document highlighting the recommended firm’s history, products, competitors, financials, and future outlook. The decision to buy needs to be supported by quantitative analysis valuing the firm’s shares above their current selling price.

4- Final Research Project

Each student will write a 20+ page research paper, modelled on the work available through the Library database from Standard and Poors’Net Advantage. This paper will be an expansion of one of the Power Point and Word documents described above, and contain both qualitative and quantitative reasoning supporting the logic that this company should become part of our holdings. This paper will be graded on the quality of the logic, quantitative and qualitative, used to support the recommendation.

Tentative Schedule of Instruction, and Topical Coverage

Weeks 1-3: Introduction to SMIP:

Presentation of existing portfolio: What we own, and how the positions have fared since they were purchased. In addition to a review of the materials from Finance 351 on equities and the markets in which they are traded, students must also learn how to use the Moneychimp and Damodaran software. You must research each of the existing positions since we need to sell them when we buy the common stock of other individual companies.

Sample presentations from prior semesters: During the prior 31 semesters, student managers have made over 500 presentations. The best of these will be discussed. Specific attention will be paid to the form of these presentations, (PowerPoint), and the need to include discussions of company performance as well as risk factors.

Establishment of research groups: An attempt will be made to unite students whose strengths complement one another. Issues of portfolio diversification will also be discussed.

Week 2– Preparation and Analysis of Financial Statements: Using Standard and Poors, Yahoo!Finance and Edgar. What are these information sources? Where can we find them online? How do we compare them with those of the firm’s competitors?

Week 3– Equity Valuation Modeling and Review of Recent Performance in the Equity Markets: The cyclical nature of stock prices and the relationship between stock indices and individual security prices are discussed in this module.

Following Damodaran, we will trace the evolution of equity value determination using various discounted cash flow methodologies.

Week 4– Quantitative Analytics and Technical Analysis in Portfolio Formation: This module introduces the class to the infinite variation of quantitative strategies

Week 5– Presentation and Recommendations from Individual/Group I

Week 6– Presentation and Recommendations from Individual/Group II

Week 7- Presentation and Recommendations from Individual/Group III

Week 8 – Presentation and Recommendations from Individual/Group IV

Week 9 – Presentation and Recommendations from Individual Group V

Week 10 – Presentation and Recommendations from Individual Group VI

Week 11 Presentation and Recommendations from Individual Group VII

Week 12 Presentation and Recommendations from Individual Group VIII

Week 13 Presentation and Recommendations from Individual Group IX

Week 14 & 15- Preparation for next semester: Price targets and stop-loss strategies will be discussed and set in place so that trading during the 15 weeks between the Spring semester’s end and the Fall semester’s start can be modeled.

Guest speakers appear 2-3 times per semester and speak to the class about their work in the field of equity management. To date these speakers have included Joel Levy of Salomon SmithBarney, David Selvers of TMT Investments, Aswan Damodaran of NYU, Michael McFarland of NetReit, Bill Yost of MarketNeutral, Joe Sclafani of UBS, Natalia Tchechoulina of HPM Partners, and Dan Shaffer of Shaffer Asset Management.

Special Note:

If you have a disability for which you are or may be requesting an academic accommodation, you must register with the Coordinator of Services for Students with Disabilities. You can contact the coordinator at 212-346-1526 in New York and 914-773-3710 in Westchester.

used to support the recommendation.

 
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