Financial management Coursework Example | Topics and Well Written Essays - 2500 words

Financial management - Coursework Example Bonds are valued using the time value of money principle where due to its earning capacity, money available at present are more worthy than the same amount in the future. The interest rates are treated like an equal annual cash flows streams while the face value is treated as a lump sum (Minton, 1997, pp.28). Where k is the number of periods, n is the number of periods to maturity, Yield is the yield to maturity of the Bond and PVCF is the present value of the discounted cash flows at the yield to maturity. Standard and Poor 500 (S&P 500) is a capitalization-weight index of the best performing five hundred publicly listed stock in the United States. This covers about 75% of the American equity market by capitalization. The data included in the index includes the financials such as the stock price, the market capitalization earnings and so on (Anderson, 1997, pp.456). The intrinsic value of stock is derived from estimating and discounting the future cash flows from the stock and it simply implies the estimated value of stock today. Investor and analysts to state the relationship between the stock price and the intrinsic value have used it. If the intrinsic value is greater than the current stock price, the asset should be purchase or keep hold of it if it is already owned. The asset is correctly valued if the current stock price is equal to the intrinsic value. Nevertheless, if the intrinsic value is less than the current stock price, the asset is overvalued and therefore should be avoided at all cost and if it is already held, it should be sold. Divided discounted model of stock valuation is uses a discounted cash flow model. It states that the value of stock is equal to the current value of all the future payments to which the stock holder is entitled. In this case the payments are in form of dividends. The greatest assumption by the dividend discounted model is that the dividends are steady or will continue to increase at a