The paper 'Financial Management' is a perfect example of a Macro and Microeconomics Assignment. The fair price of the Greenwich Research Plc bond is 887.70. The reasonable price of the bond is the present value of the bond. This is determined by discounting all the cash flows emanating from the bond issue using the yield to maturity as the appropriate discount rate. The cash receipts anticipated from the bond issue are the regular coupon payments plus the redemption value of the bond. Macaulay duration is 8.24 months, whereas the Modified Duration is 8.03 months.
Macaulay duration is the meantime to maturity of the cash flows emanating from a bond issue. This is determined by multiplying the present value in a given period by the number of the period, which is then summed up and then divided by the sum of current importance. The table below shows the duration of approximation for different YTM's. The companies chosen for equity valuation in this paper are Sigma-Aldrich Corp, and WW Grainger Inc. Sigma-Aldrich Corp is in the materials sector and in the chemicals industry, whereas WW Grainger Inc.
is in the industrial sector. This paper has used the dividend discount model to determine the intrinsic value of the stocks of these companies. Intrinsic value is the real value of the security, which is sometimes different from the market value of the security. The market value of a security is the price of the security as determined by the forces of demand and supply of the stock in the market. This may not be a reliable measure of the real value of the stock since the market value is mostly influenced by the information about the company, which is available in public.
However, not all information about the company is freely available to the general public hence the difference between the intrinsic value and the market value of a stock. Therefore, this paper will rely on dividends to compute the intrinsic value of the selected stocks. The dividend is the share of profit that is distributed to the shareholders of the company. These dividends are declared to be paid by the board of directors of the company whenever the company has made a profit during the year.
An investor will invest in the company in anticipation of the regular payment of dividends. The assumption made in this case is the company will be profitable, and its board of directors will always declare dividends at the end of the financial year of the company.
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