Total 1000 words( please follow instructions carefully)
Interest Rate, Stock Valuation, Risk and Returns
paper 1-part 1-300-350 words
paper 2-part 2-200-250 words
paper 3-3 responses-150 words response each (3 responses-450 words)————– Responses in R2 doc(Please find the R2 doc attached)
Write 300-350 words for part 1, Write 200-250 words for part 2 and respond to three articles with 150 words each.
Part 1: Interest Rates
Many managers do not understand the various ways that interest rates can affect business decisions. For example, if your company decided to build a plant with a 30-year life and short-term debt financing (renewed annually), the cost of the plant could skyrocket if interest rates were to return to their previous highs of 12% to 14%. On the other hand, locking into high, long-term rates could be very costly also with a long period when low short-term interest rates were to be available. As you can see, the ability to know your economic environment and its impact on projected interest rates can be crucial to making good financing decisions.
Describe two to three macroeconomic factors that influence interest rates in general. Explain the effects of each factor on interest rates.
Now think about the industry in which you are employed or one in which you have past experience. To what macroeconomic factors is your industry most sensitive?
Describe two contemporary factors that seem to be impacting your industry today, and identify their impacts on the interest rates experienced within your chosen industry.
Support your comments with your own experiences, the weekly resources, and/or additional research. Use APA throughout and provide appropriate in-text citations and references.
Part 2: Stock Valuation, Risk and Returns
Dividend Discount Model Stock Valuation
How to value a company using discounted cash flow (DCF)
Stock Valuation and Investment Decisions
The links above contain information on stock valuation, risk, and returns. Please review each one of them. Based on the knowledge gained from the materials presented in the links above, complete the following activities:
Present a detailed discussion of what you learned about stock valuation. Provide examples of how your company has used the concepts. Do you believe financing a company’s operation using stock is better than financing with bonds? Why or why not? Support your discussion with a numerical example.
Based on the materials presented in the “Risk and Return” video, present a discussion on why the materials are important in financial decision making. How would you incorporate risk and return in your financing decisions?
In your response to the discussions posted, consider comparing cash generation techniques at your company versus his or her company. Draw distinctions based on the industry and tell your colleagues why those distinctions are necessary for the management of cash flow.
Below are additional suggestions on how to respond to discussions:
· Ask a probing question, substantiated with additional background information, evidence or research.
· Share an insight from having read your colleagues’ postings, synthesizing the information to provide new perspectives.
· Offer and support an alternative perspective using readings from the classroom or from your own research.
· Validate an idea with your own experience and additional research.
· Make a suggestion based on additional evidence drawn from readings or after synthesizing multiple postings.
· Expand on your colleagues’ postings by providing additional insights or contrasting perspectives based on readings and evidence.
1) Respond to 1st article with 150 words
There are different macroeconomic components that impact the financing costs all in all. Give us a chance to talk about a couple of them here;
Economy: One of the fundamental variables impact the loan fee is the Economy of the nation and the organization, this plays and impacts the development of the enthusiasm of the obtaining and loaning. In the developing economy, individuals should study and proceeds with the wellspring of pay, this enables them to get and purchase more from the market, and they will begin contributing and purchasing house, vehicle and other required things and mean obtaining the limit and the request will increment and in a similar suggestion loan fee of loaning will increment upward way, in the event that the equivalent is inverse way, at that point it unmistakably demonstrates the exhausting monetary conditions.
Expansion: When the cost of products and administration increment the swelling increment, this will plan to diminish the acquiring force, and the loan fee will affect as the is less measure of obtaining. There are great and terrible for individuals if expansion changes. Raise of expansion is useful for individuals who are conveying obligation, as it brings down the estimation of every dollar you owe to the bank or money related organization. While it is awful for moneylenders as the dollar worth is not exactly the worth it initially loaned because of swelling, this will expand the enthusiasm to the record for the distinction (Bond, 2020).
My continuous experience was from the car business, as in the monetary lead down the swelling expanded and the purchasing influence is diminished as there was less limit of acquiring from individuals, as individuals begin losing the positions and less development of cash in the market, this influenced the vehicle business as it requires more cash to purchase any new car than different things. This influenced the business severely plan it influenced the representatives and mean we began losing positions. Each part of the economy is associated with one another.
Contemporary factors that affecting business today are new advances and social variables, new advances can be utilized all around viably in the developing efficient nation to decrease the expense and expansion, new machines with cutting edge innovations will lessen the creation cost and it progresses the worldwide store network model and it empowers organizations to deliver the best quality item at the lesser expense for the universal market. Social elements impact individuals to purchase more at the value they willing to pay and it will affect the acquiring force and merchandise and administration division will naturally develop (Voigtländer, 2018).
From the recordings, we discovered that each financial specialist pursues the hazard and returns, most extreme the hazard higher the profits and the other way around. It demonstrates all ventures are not immaculate and never anticipate similar comes back from every one of the speculations, and a similar way every one of the speculations won’t be fruitful not all they will fall flat, there is a probability of both disappointment and accomplishment in the venture. As there isn’t produced and characterized the way for progress, financial specialists to have a broadened venture to be in the documented to get the profits in the event that they put resources into a solitary kind of business, at that point, the achievement and disappointment are higher and the hazard will be more. Stocks and bonds are the two principle subjects talked about in sections 7 and 8. This segment gives expansive clarification and offers the learning on shifts monetary parameters and the techniques an organization can follow during the time spent their speculation methodology. Despite whether the business get the money from the speculators or budgetary organization or by issues stocks or corporate protections, there are issues and hindrances in every one of the areas and ways, it is essential to deal with these issues for the development of the business and take the correct choice at a suitable time for the advancement of your business (Nweze, 2020).
Birt, J., Chalmers, K., Maloney, S., Brooks, A., Oliver, J., & Bond, D. (2020). Accounting: Business reporting for decision making. John Wiley & Sons.
Demary, M., & Voigtländer, M. (2018). Reasons for the declining real interest rates (No. 47/2018). IW-Report.
Emenogu, N. G., Adenomon, M. O., & Nweze, N. O. (2020). On the volatility of daily stock returns of Total Nigeria Plc: evidence from GARCH models, value-at-risk and backtesting. Financial Innovation, 6(1), 1-25.
2) Respond to 1st article with 150 words
Part – 1
Interest rates refer to the amount payable on top of the money borrowed by an individual or organization. Interest rates regulate the rate at which cash is borrowed. High-interest rates discourage people and organizations from borrowing, and when they go low, they encourage people to borrow since they not required to pay back a lot of money. There are macro and micro factors that influence interest rates. Macro elements are known to be external factors that organizations cannot control. These external factors include the following.
Inflation-Inflation refers to an economic situation where the prices of goods and services go high over a long period. Inflation makes the currency to lose its value, and this leads to tough economic times. Due to inflation, people append a lot of money to get a few goods or services. In the same vein, organizations may end up borrowing a lot of money, and this makes the financial institutions to raise their interest rates so that they can earn money.
Recession-Refers to the economic situation where business organizations fail to expand, the gross domestic product goes up, and unemployment increases too for two or more consecutive quarters. This leads to interest rates going up so that the financial institutions can earn profit from the money they lend to organizations (Chyruk, 2020).
On the other hand, the following are the contemporary issues in the industry that affect interest rates are,
Technological issues-The recent and rapid technological changes are significantly impacting organizations and catalyzing growth. This is making organizations to borrow more money to make the expansion and diversification possible. Consequently, due to the increased rate of borrowing, financial institutions raise interest rates.
Competition- is another contemporary factor that affects interest rates. Competition is always fluctuating depending on the number of the organization is the industry. If the competition is high, then the interest rates are likely to go high too since most organizations borrow money (Ongena, 2018).
Part – 2
Stock valuation refers to a process that involves the government evaluating the possible methods of financing the company’s operations. Through stock valuation techniques, an organization gets to know which way can work for the organization and at the same time, give the maximum returns to the owners with the least risks. Financing through stock and bonds are the most commonly used methods in organizations. However, the best way to raise capital and finance for the organization is through bonds. This is because bonds are reliable; their rate of return is fixed and also constant.
Example: Supposing a person buys 2000 shares at $ 100 each then he sells them at $ 120 per share. Then the person will get $20 as the nominal return. On the other hand, suppose the same person has a fixed rate coupon of $20,000, which pays at 5% then the person will earn an annual interest of $1,000 (Utami, 2020).
Ajello, A., Benzoni, L., & Chyruk, O. (2020). Core and ‘crust’: Consumer prices and the term structure of interest rates. The Review of Financial Studies, 33(8), 3719-3765.
Arce, O., García-Posada, M., Mayordomo, S., & Ongena, S. (2018). Adapting lending policies when negative interest rates hit banks’ profits.
Utami, N. (2020). Analysis Of The Influences Of Dividend Payout Ratio, Return On Equity, Growth And Firm Size On Stock Value With Leverage As Mediating Variable. Jurnal Akademi Akuntansi (JAA), 3(1), 44-59.
3) Respond to 1st article with 150 words
Macroeconomic factors that influence interest rates
There are different macroeconomic variables that impact financing costs are, for example, joblessness, house costs, swapping scale, wage swelling, item costs, save limit, and expansion. The long-term joblessness in the nation prompts an expansion in pay swelling in the country, makes it difficult for individuals to pay lease and buy merchandise, and expands the financing costs. It naturally prompts a reduction in the development of a country. Another factor that impacts financing costs more is that item costs. The augmentation in ware costs prompts inflationary weights since it makes imports to different nations costly, increment the interest in fares. It brings about devaluation in the swapping scale and builds loan fees. The moves were made by the central government additionally demonstrates a noteworthy effect on loan costs since it contains the most astounding FICO assessment.
Macroeconomic factors most sensitive in selected industry
The business where I am working is the data innovation (IT) industry. The IT business is delicate and influences the change in macroeconomic factors regularly. The macroeconomic variables that influence the IT business are, for example, swelling, joblessness, reserve funds, and ventures. Expansion is a progressively delicate factor that shows a critical effect on the business since IT is a lucrative industry and higher swelling prompts decline benefits in the IT industry, the decline in the capacity to put into different organizations, and investment funds of industry. The more extended joblessness prompts wage swelling and down compensations and diminishes business rate (Labondance, 2018).
Contemporary factors affect the chosen industry
The two contemporary factors that demonstrate a huge effect on the IT business directly are, for example, worldwide clash and globalization. The universal clashes lead to expanding hindrances in bringing in and trading of merchandise between the countries. It additionally influences exchanges and changes the exchange made between the countries that outcome from the adjustment in money trade between the countries and change cash. Along these lines, the global clash is a touchy factor that influences the IT business. Another factor is globalization that legitimately influences loan costs paying by the business. Since globalization includes more nations and enables firms to re-appropriate administrations to firms in different nations. The adjustment in the remote nation prompts an adjustment in loan costs and the financial position of the business (Williams, 2019).
Stock valuation to finance firms’ operations
In view of the learning picked up from gave materials on stock valuation, dangers and returns, it is comprehended that stock valuation is an instrument that encourages the firm to gather data from different sources, assess the stock, and make educated choices that help to upgrade the exhibition of business and accomplish wanted development of an association. The firm uses it as a procedure to decide the hypothetical estimation of a stock that decides the estimation of stocks and the cost of the stock is finished and under the estimation of the market cost. Truly, financing the activities of an association utilizing stock is great than utilizing securities since the stock valuation bolsters a firm to decide the stock worth and its incentive in the present market and settle on choices dependent on cost. It builds benefits and fund activities well.
Importance of risk and return in financial decision-making
In view of the learning picked up from materials, it is comprehended that hazard is a sudden issue to the business that prompts increment loan costs and decline the sum gotten by a business contributed to an undertaking. Return is the sum gotten on a task. if the arrival on a task is more prominent than the sum put resources into the undertaking then business keeps running in benefits generally prompts loss of account. It is significant for the association to consider the components, for example, hazard and return in monetary basic leadership since settling on choices without evaluating dangers and returns don’t bolster business to get expected benefits and maintain the business effectively (Szymanowska, 2020).
Mertens, T. M., & Williams, J. C. (2019, May). Monetary policy frameworks and the effective lower bound on interest rates. In AEA Papers and Proceedings (Vol. 109, pp. 427-32).
Hubert, P., & Labondance, F. (2018). The effect of ECB forward guidance on the term structure of interest rates. International Journal of Central Banking, 14(5), 193-222.
Boons, M., Duarte, F., De Roon, F., & Szymanowska, M. (2020). Time-varying inflation risk and stock returns. Journal of Financial Economics, 136(2), 444-470.