Financial Analysis Exercise #3 will build on exercise #2 and the sector/industry analysis. This exercise #3 is due by the end of Module 6.
In this exercise, it will require selection of 3 firms with each sector/industry analyzed to invest $10,000,000 of a special portfolio into both stocks and bonds evenly. The objective of the portfolio is to produce superior returns to those of the S&P 500 over the next 12 months. Therefore, given the economic environment, the sector sensitivity and performance expected, 3 firms will need to be selected per industry that will outperform their sector.
In order to meet all the requirements for the financial analysis exercise #3, you are required to complete the following tasks:
Select stocks and bonds to purchase based on sector and industry analysis
Use 3 methods to calculate relative value of stocks: dividend discount, Gordon model
and P/E or other approved method.
Obtain the consensus earnings forecast for the firms
Explain how this will affect the expected future price
Obtain a consensus interest rate forecast
How will this effect bond prices?
How will this affect the roll down the yield curve?