Question

You are a financial advisor and your clients are curious whether the Trump administration has had a positive impact on the stock market. In order to test the hypothesis; you select 15 Blue chip stocks. The following is the price of the stock 1 week before the election and 1 week after…

BBY                        45.23                     50.11

GM                        101.22                   105.22

TGT                        67.09                     73.11

AAPL                     156.88                   162.44

MAT                      25.99                     24.88

F                              69.02                     78.11

C                             69.98                     74.00

GOOG                   308.11                   332.06

PETM                    34.99                     35.11

BCS                        101.88                   103.22

BSX                        78.22                     74.20

ADP                       56.11                     57.90

IBM                        134.09                   150.68

T                              89.44                     93.12

YHOO                    45.98                     46.11

What type of statistical analysis would you conduct and why? What is your research null and alternative hypotheses, what type of data was collected, and what are your findings?

Answer 1

Solution:

The first step would be the analysis of the company's performance and looking into the past history of the company stock and operational activities of the company . The financial advisor needs to also check whther the company is performing as per the industry standards or not.

Some of the fundamental analysis would be checking som eof the ratios like current ratio , profit margin ,debt equity ratio , interest coverage ratio , dividend payout ratio etc which helps the financial advisors to advice the client regarding the invesment.

Growth rate = 12.2% - 3% = 9.2%

DCF valuation = discounted cash flow valuation helps to value a company based on the future cash flows

operational activity the cash flow = 7 billion

no of shares = 1 billion shares

current stock price = 47.50

First we would find out the rate of return ie discounted rate using the gordans model also known as dividend discount model

= dividend paid = $.5 per share

.5/ 47.50 + .0922 = 10.28% we need to discount

Hence the value of the company would be Free cashflow / .1028 - .0922

= 7 billion - 4.1 - .7 -.5=$ 1.7 billion

= 1.7/.0105 = 161.90

Hence the intrinsic value = 161.90 /1 = $161

Since the intrinsic value is more than the current stock price hence I would recommend to invest in the company .

Thank you.