5.3

Introduction

In this problem set, youll apply valuation formulas to determine whether specific stocks and bonds are fairly priced. Youll calculate intrinsic values, compare them to market prices, and interpret what those differences mean for investors.

Your textbook reading for this week, and the exercises in Activity 5.2 include all of the formulas and information you need to complete this activity.

You can also refer to Appendix E: Using Excel to Solve Financial Exercises in your textbook for additional guidance.

Activity Instructions

1. Download the .
2. Use Excel to complete the following:

• Bond Valuation: Calculate bond prices given coupon rate, yield to maturity (YTM), and years to maturity.
• Stock Valuation: Use the Dividend Discount Model (DDM) and the constant growth model.
• P/E Ratio Valuation: Estimate stock price using earnings and industry P/E ratios.

1. Compare your calculated intrinsic values to the given market prices.
2. Write a short interpretation explaining what your results suggest. Are the securities overvalued, undervalued, or fairly priced?

Example: If a bonds intrinsic value is $1,040 but the market price is $990, it may be undervalued, suggesting a potential buying opportunity.

At the end of your submission, include a brief Design Statement explaining the process and tools you used to develop your work. Your statement should be about a paragraph or so, in your own words (rather than formally written), and unique to this assignment. Why are we asking for this? Find out more about .

Tips for Success

• Double-check compounding periods. Most bond problems use annual or semi-annual.
• Use Excel functions such as =PV() and =RATE() to save time and ensure accuracy.
• Focus on explaining your reasoning, not just showing numbers.

Writing and Submission Requirements

• Submit your completed Excel file with visible formulas.
• Include a brief written summary of 1-2 paragraphs (Word documents only).
• Use APA format for citations
• Refer to the for additional grading criteria
• Include your Design Statement

Weekly Learning Goal(s):

1. Calculate the intrinsic value of bonds and stocks.
2. Distinguish between different types of stocks and bonds.
3. Apply valuation techniques to real-world investment decisions.