Respond to three questions and solve five computational problems related to stocks. Companies can raise money through common stocks. Investors buy stocks and get the benefits of ownership of a firm. H

Overview

Respond to three questions and solve five computational problems related to stocks.

Companies can raise money through common stocks. Investors buy stocks and get the benefits of ownership of a firm. How to price stocks is the main objective of this assessment, in which you will learn about the differences between common and preferred stocks, the different stock valuation models, and the major stock market indexes.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Evaluate the global financial environment. 

• • Calculate how much money is needed to buy a specific amount of stock.

  • Describe the advantages of stock ownership.

• Competency 2: Define finance terminology and its application within the business environment. 

• • Calculate the price of a share of stock using a stock's earnings per share and P/E ratio.

  • Calculate the value of a share of stock with constant growth.

  • Calculate the value of a share of preferred stock.

  • Explain the differences between key stock market measures.

  • Calculate the percentage one-day return in the Dow Jones Industrial Average.

• Competency 3: Evaluate the financial health of an organization. 

• • Describe the rights of a shareholder.

Suggested Resources

The following optional resources are provided to support you in completing the assessment or to provide a helpful context. For additional resources, refer to the Research Resources and Supplemental Resources in the left navigation menu of your courseroom.

Library Resources

The following e-books or articles from the Capella University Library are linked directly in this course:

• Weaver, S. C., & Weston, J. F. (2001). Finance and accounting for nonfinancial managers. New York, NY: McGraw-Hill.

• Sherman, E. H. (2011). Finance and accounting for nonfinancial managers (3rd ed.). New York, NY: American Management Association.

Course Library Guide

A Capella University library guide has been created specifically for your use in this course. You are encouraged to refer to the resources in the BUS-FP3062 – Fundamentals of Finance Library Guide to help direct your research.

Bookstore Resources

The resources listed below are relevant to the topics and assessments in this course and are not required. Unless noted otherwise, these materials are available for purchase from the Capella University Bookstore. When searching the bookstore, be sure to look for the Course ID with the specific –FP (FlexPath) course designation.

• Cornett, M., Adair, T., & Nofsinger, J. (2016). M: Finance (3rd ed.). New York, NY: McGraw-Hill.

Instructions

Respond to the questions and complete the problems.

Questions

In a Word document, respond to the following. Number your responses 1–3.

1. Describe the rights and advantages belonging to shareholders

2. Explain the differences between the Standard and Poor's 500 Index and the Dow Jones Industrial Average. Which is a better measure of stock market performance? Why?

3. Describe the differences between common stock and preferred stock.

Use references to support your responses as needed. Be sure to cite all references using correct APA style. Your responses should be free of grammar and spelling errors, demonstrating strong written communication skills.

Problems

In either a Word document or Excel spreadsheet, complete the following problems.

• You may solve the problems algebraically, or you may use a financial calculator or an Excel spreadsheet.

• If you choose to solve the problems algebraically, be sure to show your computations.

• If you use a financial calculator, show your input values.

• If you use an Excel spreadsheet, show your input values and formulas.

In addition to your solution to each computational problem, you must show the supporting work leading to your solution to receive credit for your answer.

Compute the following:

1. Imagine that on June 4, the Dow Jones Industrial Average closed at 13,598.14, which was up 148.86 points from the previous day's close of 13,449.28. Calculate the return, in percent to four decimal places, of the stock market for June 4.

2. The cost per stock at a brokerage firm is $0.10. Calculate how much money you would need to buy 150 shares of HiTech, Inc., which trades at $18.22.

3. HiTech, Inc.'s growth for the future is forecasted to be a constant 10 percent. HiTech's next dividend is expected to be $1.18. Calculate the value of HiTech stock when the required return is 12 percent.

4. Preferred stock from HiTech, Inc. pays $1.20 in annual dividend. Calculate the value of the stock if the required return on the preferred stock is 4.5 percent.

5. HiTech, Inc. has earnings per share of $1.82 and a P/E ratio of 31.54. Calculate the stock price.