Phase 3 Individual Project- Bonds Essay example

Submitted By lovepearl07
Words: 725
Pages: 3

Phase 3 Individual Project- Bonds
Daniel Oberly
Due: 06/08/15

Excel Spreadsheet Calculations

After getting some required help from professor Karlberg I will explain the relationships between the required rate of return, growth rate and the dividend paid all using the Gordon Model. I will also be able to explain the strengths and weaknesses to using the Gordon Model on the value companies expect to grow at the same rate endlessly. I will also talk about the price-to-earnings model used to estimate the value the stocks used. In the conclusion of learning about Bonds this was all new information I am absorbing there for I will do my best at explaining the finding or results. The Gordon Model was named after the professor Myron J. Gordon along with a few other scholars they help create the model also known as the dividend discount model. This models sole method and use is to calculate the value of stock and current market conditions for investors to use to monitor their money. When dividends are not expected to grow at a constant rate, the investor must evaluate each year's dividends separately, incorporating each year's expected dividend growth rate. However, the multistage growth model does assume that dividend growth eventually becomes constant. This exclusion allows investors to make apples-to-apples comparisons among companies in different industries, and for this reason Gordon Growth Model is one of the most widely used equity analysis and valuation tools. Based off the information above in the calculations the company that had the best rate of return from the Gordon Model is Citi Bank. This company showed the best stock improvement for the potential investor. Now using the Gordon Model there are strengths to using this method and weaknesses. The strengths I found were; useful when valuing stable growth dividend paying companies, broad- based equity indices, clarity in its findings, understanding the relationships between value, growth, and rate of return. As well as estimating expected rate of return. The known weaknesses are the output is sensitive to assumptions for growth rate, not the best tool for figuring the non-dividend paying companies, nor the best tool for valuing dividend paying sticks with unstable growth. These are the finding based off the information above. Price to earnings ratios (P/E) is the method used to compare a company’s current share price to it per- share earnings. Based off the information and finding above to my understanding the P/E ratio is found from getting the estimated earnings or potential earnings by taking the estimated earning and multiplying the P/E ratio to get the estimated stock price. Then with the estimated stock price minusing the current stock price to see the ratio f over or under the potential. A good tool to see…