NEED RESPONCES FOR EACH QUESTIONS..

1)What assumptions do you make to estimate the terminal value of a stock?

2) Pick two of the major stock indices; explain what type of companies they represent and discuss what could be the purpose of monitoring those indices.

The stock index is a measurement of a section of the stock market. It is computed from the prices of selected stocks. It is used by investors and financial managers to describe the market and to compare the return on investments.

The two major stock indices I select The Nasdaq Composite Index and The S&P 500.

Nasdaq Composite Index:

The Nasdaq is the exchange on which technology stocks are traded. The Nasdaq Composite Index is market capitalization weighted index of the stocks traded on Nasdaq stock exchange. The Nasdaq Composite also includes common stocks, real estate investment trusts and tracking stocks. (major stock indices, Nasdaq)

Using market capitalization weighting methodology. The index value equals to the total value of the share weights of each constituent securities, multiplied by each security’s last price. This total number is changed by dividing by an index divisor, which scales to a more appropriate value for reporting purposes.

The S&P 500 Index:

The S&P 500 is the Standard and Poor stock market index based on the size of the leading 500 US companies. The S&P 500 index is a float adjusted market capitalization weighted index. It’s calculated by using the sum of the adjusted market capitalization of all S&P 500 stocks and dividing it with an index divisor, which is a proprietary value configured by Standard & Poor’s.

The S&P 500 is a very effective representation for the economy because it includes around 500 companies, which covers every area of the United States and all industries.

Now, select a publicly traded company and imagine you were to invest in the shares of common stock of that company. How would you evaluate the risk of your investment? Which one of the stock indices do you use to evaluate your investment risk?

I select Texas Instruments Incorporated, a technology company that designs and manufactures semiconductors and various integrated circuits, they sell to electronics designers and manufacturers globally.

Evaluate:

a. Earning

Profitability is an important index consideration

b. Price/ earning ratio

It takes the share price and divides it by a company’s annual net income.

c. High/ Low P/E ratio

Stocks with P/E ratio higher than the broader market, P/E ratio stocks are considered expensive, however, the low P/E ratio stocks are considered not so expensive.

Revenue

YOY growth

Operating profit

YOY growth

Analog

$2.64 billion

4%

$1.23 billion

4%

Embedded

$791 million

-12%

$234 million

-24%

Other

$288 million

-10%

$49 million

-28%

2017 2018

Gross margin

65.1%

64.8%

Non-GAAP operating margin

41.7%

40.8%

P/E = 18

Attractive forward dividend yield = 3.2%

From the data (Texas Instruments Incorporated, Yahoo finance) collected above, we can tell the Texas Instruments has a diversified, less capital-intensive, and more shareholder-friendly strategy than many other major semiconductor companies. But it grows slow. I think Texas Instruments is one of the safe semiconductor stock, and it has a solid long-term investment. Because of the growth of the electrical manufacturer and designer quantity.

However, investors who look for low valuations, as well as high yields, should probably stick with modern popular consumer goods.

Cite:

https://finance.yahoo.com/quote/TXN/
https://www.nasdaq.com/markets/indices/major-indices.aspx

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