Finance Assignment: Time Value of Money, Stock Market Returns, and Bond Market Valuation

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
1.0 Introduction...........................................................................................................................2
2.0 Objectivity and Research Methodology...............................................................................2
3.0 Theoretical Background........................................................................................................3
4.0 Literature Review.................................................................................................................4
5.0 Analysis and Interpretation...................................................................................................5
6.0 Conclusion............................................................................................................................9
7.0 Executive Summary..............................................................................................................9
8.0 Appendix.............................................................................................................................10

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1.0 Introduction
The assignment covers various aspects in the view of time value of money, stock market
returns and bond market valuation. Capital budgeting tools like Net Present Value, Internal rate
of return and the Payback method were some of the tools that were taken for assessing the
financial viability of the project. The capital structure of the company or the weighted average
cost of capital shows the firm net cost of capital after taking the cost of debt and cost of equity
into account. Stocks and Bonds are some of the traditional form of investment. The features and
characteristics of each of the investment asset class were taken into consideration for the purpose
of the analysis. The financial analysis of the investment considering into the real estate sector
and the probability of return in the scenario were taken into consideration for the purposes of the
analysis of the determination of the return generated by the stocks.
2.0 Objectivity and Research Methodology
The objective of the study aims at conducting the financial research on the various concepts
of the financial instruments and the capital budgeting tools. The methodology involved in the
determination were the concepts and formula of the time value of money. Various methods were
even applied for determining the return generated by the stocks in different case and scenario
where the return on the stocks usually gets affected with the probability of the various scenarios
discussed. The methodology involved in the calculation of the data was done with the help of the
involvement of the secondary data for the assignment. The valuation of the stock future value
was determined with the help of the future value of the stock. The effective annual yield
valuation of the stock was calculated with the help of the future value of the stock, maturity and
the coupon rate of the bond. Tools involved in assessing the financial viability of the project like

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Net Present Value, Internal Rate of Return and Payback Methods were evaluated for assessing
the financial viability of the project. The weighted average cost of capital shows the net cost of
capital for the company thereby evaluating the cost of debt and the cost of equity for the
company and considering the tax rate for the company. The difference between the stocks and
bonds are based on the characteristics and features of each of the asset class. The traditional form
of investment has their own risk return benefit and in accordance with the investor’s profile for
investment the same will be considered for the purpose of investment. The relationship between
bonds and stocks could be well demonstrated with the help of the negative correlation between
the interest rate and the bond prices.
3.0 Theoretical Background
Stock Valuation:
The valuation of the financial instruments were carried on with the valuation of the stocks
and bonds at different time and there yield effectively. The valuation of the stock was calculated
with the help of the dividend growth rate model where the value of the stock could be well
generated with the help of the dividends paid by the company in the form of expected future
dividend and the required rate of return on the stock and the corresponding growth rate of the
stock. The formula applied for the calculation of the stock were as follows:
Value of the Stock (V5): Dividend at Fifth Year (D5)/ (Required Rate of Return (Re)-Growth
Rate).
Weighted Average Cost of Capital:
The weighted average cost of capital shows the net cost for the company in the field of
various sources of the financing the company applies. The cost of equity could be well generated