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Vanilla Valuation

Vanilla Stock Valuation By Mercutio Goins Introduction to Corporate Finance February 4, 2013 xxxxxxxxxxx xxxxxxx University

Vanilla Valuation Vanilla Stock Valuation Part I Price Analysis Future Growth Rate

The future growth rate is the rate which the organization expects for the future. Here, two organizations are taken into consideration. The organizations considered here include Morgan Stanley and Citi Group (Ehrhardt & Brigham, 2011). The share prices of both the organizations for a period of the last 5 years are taken into consideration. Morgan Stanley has not worked properly in the last 5 years regarding the growth rate of value of shares. The average growth rate of the organization Morgan Stanley is -10.95% which is at a negative level. The organization has seen downfall in the stock price. The organization has seen a turnaround in the year 2011 and the average growth rate of the organization is 86.54%. Better Growth Rate The organization Citi Group has greater levels of growth rate compared to the organization Morgan Stanley. The share prices of these two organizations have gone down to a certain extent in the last 5 years but, the the organization Citi Group has seen an increase in its growth rate. The assessment done in the present situation does not seem to be appropriate due to the fact that, the average growth rate of Citi Group is high only because of the fact that, its stock price has risen in the last year. It is necessary to take the other years into consideration also for the purpose of determining the actual growth rate of the price of a share of the organization. Future Stock Price

Vanilla Valuation In order to calculate the future stock price of both organizations, the constant dividend growth model shall be taken into account. The future stock price of Morgan Stanley is $22.78 (Morgan Stanley, n.d.). The growth rate for Morgan Stanley calculated by way of dividend model is -0.86%. On the other side, the future stock price of Citi Group will be $30.09 as the expected growth rate of this organization is -8.90% On the basis of the time value of money, it can be said that, Citi Group has higher levels of opportunities for the investors as the organization has shown a higher level of increase in the

stock price in the last year. The investors can expect that, they will be in a position to have better results available to them, if the investment shall be made by them in the Citi Group in future. Stock Price Comparison At the present time, the stock price of Morgan Stanley is $22.98 and the future price of the organization Morgan Stanley shall be at the level of $22.78. In relation to the organization Citi Group, it has been provided that, the stock price of the organization at the present time is $42.6 and the future of stock of this organization will be at the level of $37.27. In this way, on the basis of the average rate of growth, the price of a share of the two organizations shall be lower in the future. At the present time, the value of shares of the organization has gained momentum, therefore, it can be said that, the investors shall be looking forward to make sure that, they make the investment in the securities of the organization. The organization Citi Group is expected to move in a better manner in comparison to the organization Morgan Stanley. In the year 2011, the share price of Citi Group has jumped by around 400%, but Morgan Stanley had a downfall in the same year (Citi Group, n.d.).

Vanilla Valuation For the shareholders, the financial health of the organizations makes a huge difference. An

organization which is financially healthy is expected to provide higher levels of dividends to the shareholders and the shareholders look forward to invest their funds in those organizations. Here, the investors should invest in Citi Group due to the fact that, this organization has provided a better level of results to the shareholders in the past. The value of a share of the organization Citi Group at the current time is also higher in comparison to the price of the share of Morgan Stanley. This shows that, the organization will have a higher level of results to be given to the shareholders in the future in comparison to the organization Morgan Stanley. Therefore, the investors should invest in Citi Group rather than Morgan Stanley. Part II Bond Pricing Introduction The present paper is in relation to the bond pricing of two organizations. There are few organizations that issue the bonds to the investors and provide dividends to shareholders. The discussion in the present paper shall be regarding the value of the bond and the credit rating of the organization. Credit rating has a lot of relevance for banks; therefore, it shall be taken into account in the present situation. Selected Organizations The establishments selected in the present situation include Morgan Stanley and Barclays. The organizations have a very important place in the country of the United States of America. Both the of the establishments issue bonds to the investors and also provide dividends

Vanilla Valuation to the shareholders. The establishments Morgan Stanley and Barclays PLC have some level of long term debts. For the organization Morgan Stanley, the long term debts are at the level of $204953000 and for the organization Barclays PLC, the long term debts are at the level of $891751 (Mogan Stanley Common Stock, n.d.). The coupon price of bond of Morgan Stanley is $5.375 and that of the organization

Barclays PLC is $6.875. in this way, it can be said that, the value of bond for Barclays is higher in comparison to the organization Morgan Stanley. The length of maturity of the bond of Morgan Stanley is 21 months and that of Barclays is perpetual. The yield to maturity of the bond is also taken into account. The yield to maturity of bond of Morgan Stanley is 3.17 and that of Barclays is 9.63. In relation to the price of the bond of the establishments, it can be determined that, the price of bond of Morgan Stanley is high in comparison to the price of the bond of Barclays (Barclays, n.d.). Regarding Barclays, the price of a bond is at the level of $90.850 and for Morgan Stanley, the price of a bond is at the level of $103.750. In this way, the investors of Morgan Stanley shall be required to make payment of higher level of money for purchasing the bond in comparison to the money required to the spend for the bond of Barclays. In this way, it can be said that, more investors shall be looking forward to get attracted towards Barclays in comparison to the organization Morgan Stanley. The investors always try to make sure that, they are made to pay lower level of money for purchasing the securities at any point of time in the future. Time Value of Money

Vanilla Valuation

In relation to the purchase of bonds and investment of money in the bonds, time value of money is very important for the investors (Morgan Stanley, n.d.). The concept of time value of money shows that, the value of money is expected to increase with the passage of time and the value of money in the future is definitely going to be high in comparison to the value of money at the present time. In this way, the investors shall be in a position to make sure that, the money invested by them in the bonds grows to a higher level in the future. Credit Rating Credit rating is a particular form of rating which provides the information regarding credit worthiness of an organization. At the present time, the value of bond of both the organizations has increased in the last 3 years. Thus, the credit rating of all these organizations is surely better as these organizations are getting better response from the investors in the past. Better Credit Rating To determine the organization which has better credit rating, there are few things which are necessarily required to be taken into consideration. The yield to maturity and growth of bond price shall be taken into account in the present situation. The yield to maturity of Morgan Stanley is 3.17 and that of 9.63. The Growth rate for Morgan Stanley is lower when one compares the same with the growth rate of Barclays. In this way, the organization Barclays is expected to have better credit rating in comparison to Morgan Stanley. Banks and Investors The banks and investors shall move towards the organization which is having better credit rating. Here, Barclays has a better credit rating, therefore, it will be appropriate for the

Vanilla Valuation banks and the investors to make sure that, they move towards Barclays instead of Morgan

Stanley (Barclays PLC Common Stock, n.d.). The banks and the investors will have better results available to them if, they will work with the organization which has a better credit rating. Conclusion Here, in the present situation, two organizations i.e. Morgan Stanley and Barclays were taken into consideration. Regarding the organizations, it can be said that the organization Barclays has better expected returns when,one compares the same with Mogan Stanley. The investors should make sure that, their investment is made in Barclays for getting higher level of benefits in the future.

Vanilla Valuation References Citi Group. (n.d.). Retrieved February 7, 2013 from citigroup.com Ehrhardt, C.M. & Brigham, F.E. (2011). Financial Management: Theory and Practice. (13th ed.). Cengage Learning. Barclays. Self-Trade, Retrieved on February 7, 2013 from selftrade.co.uk Morgan Stanley. Self-Trade, Retrieved on February 7, 2013 from selftrade.co.uk

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