2. Table of contents
Executive Summary…………………………………………………………………….. 3
Goals & objective……………………………………………………………………… 5
Weekly portfolio results………………………………………………………………. 7
Portfolio beta estimation……………………………………………………………… 21
Individual securities analysis………………………………………………………… 23
o General Electric Corp……………………………………………………….. 23
o McDonald’s Corp……………………………………………………………. 32
o Vanguard Short term bond index fund……………………………………. 41
o Family Dollar Stores Inc…………………………………………………… 46
Summary……………………………………………………………………………….. 53
Conclusion…………………………………………………………………………….. 60
Appendix-1…………………………………………………………………………….. 61
Appendix-2…………………………………………………………………………….. 64
Appendix-3……………………………………………………………………………. 66
2
3. Executive Summary
This project reflects our assigned role as investment analyst or portfolio manager. We invested
maximum $250,000 in at least one stock, one mutual fund, one corporate bond, one treasury
security and one stock option for the short period of 14 weeks starting from Jan 30, 2009 to May
1, 2009. Being an investment analyst, we successfully managed portfolio by updating it every
week by selecting securities on basis of our investment objective.
Investment in different securities
$100,000
$80,000
$60,000
Week-1
$40,000
Week-14
$20,000
$-
Stocks Mutual Corportate T-bills Cash
Funds bonds
We chose our investment objective is to preserve the capital. So, goal to be attained according to
our objective was to preserve our capital in that bear market rather than to lose along with
market. Thus, we learnt to select securities to invest in for the portfolio on the basis of their beta-
the risk measure and understood the concept and importance of portfolio beta to fulfill
investment objective.
Further, we have demonstrated weekly results of our portfolio with sufficient details. It shows
how far we reached to attain our investment goals.
Overall return on
Week-1 Week-14 investment
Total Portfolio value $ 250,000 $ 242,319 -3.07%
NYSE Composite
5195.79 5,568.76 7.18%
value
3
4. 12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00% 1 2 3 4 5 6 7 8 9 10 11 12 13
-4.00%
-6.00%
-8.00%
-10.00%
Portfolio return % NYSE Composite index return %
Above chart supports our investment objective. We have successfully managed to preserve our
capital over extremely volatile course of the market. Lower portfolio beta of approx. 0.29 makes
portfolio returns very less sensitive with market returns over the same time period.
Later in this project, we discussed the news and market/ industry information that affected the
performance of the individual securities in our portfolio. We analyzed stock performance and
ratings, debt structure, competitive environment, current economic situation, impacts of
globalization and options & preferred stocks (if any).
In the conclusion, we summarized everything that we learned in the context of portfolio
formation and market efficiency, diversification, appropriate choice of securities for investment
objective, CAPM, option profit diagrams and trading strategies.
4
5. Statement of objective
Introduction
Investment objective changes for most of the people throughout their life. It is all dependent on
the risk and return factor and individual‟s willingness to take risk or in other words people need
to be compensated with proper return against the value of the risk they take, and this is termed as
risk aversion. Capital appreciation may be more important for the young investors as they are
more willing to take risk but later stage when one enters the golden years of their life they
became more risk aversive and would move with placing more importance on gaining income
and preserving it. Risk is often defined as portfolio volatility, or the fluctuation in the value of
your assets over time. Understanding one‟s tolerance for risk which differs for each investor is
the key to choose an investment strategy. But the most successful investment should be well
diversified. Moreover a well diversified portfolio can not only help to reduce unwanted risk but
also contribute to winning the portfolio.1
Goals and Objective
From the very beginning we were well defined to choose our objective of the portfolio. We were
decided to move with the objective of preserving the capital. The reason behind this was the
time period in which we were given this project. Presently the economy is facing recession, thus
moving with the objective of preserving the capital was a wise decision. As it‟s hard to beat the
market or maximize the current cash flow in such economy. Moreover, in order to preserve our
capital we have invested in such stocks like family dollar and Wal-Mart which opt to move better
compared to other fields even in such economy. In addition we have preserved ample of cash and
invested in the Treasury bill which are risk free. The beta of the stocks that we have invested in
is low. The companies with lower beta tend to do better in such period of recession. We started
with selecting the stocks of the companies that had relatively low beta like GE, Wal-Mart and
Family dollar. Thus, we understood the importance of portfolio beta in preserving our objective.
We have even preserved ample of cash on hand which is a plus sign in preserving our capital.
1
www.investopedia.com
5
6. Moreover, investing in the bonds and mutual funds will help us to gain long term returns and
give a steady cash flow over the time. Mutual funds offer diversification, convenience and high
liquidity. Our portfolio beta ended up with 0.2926 that is approx of 0.30. The market beta is 1.
Thus if the return on the market portfolio changes by 1%, then our portfolio return will change
by 0.2926%. Thus a low beta indicated good sign of investment in the recessionary economy.
1.2
1
0.8
BETA
0.6
0.4 Security beta
0.2
Market beta
0
We started our portfolio with a cash of $ 250,000 and by the end of the 14th week we had it about
$ 242,320 which shows we made a loss of $ 7680. We were able to maintain the rest of our
capital during this 14 week project. Thus the loss which we incurred in the project was because
of the beta of the market that moved opposite to our assumption. The beta of our portfolio is
moving quite consistently but the market beta is too volatile. That is the reason our portfolio
shows this negligible amount of loss.
Thus during our project we tried buying and selling few stock, exercised our option and tried
using our cash on hand in more productive way thereby sticking to our objective of preserving
the capital. 2
2
Security and Portfolio Analysis, Douglas and Janis.
6
7. Weekly portfolio results
Week-1
January 30, 2009
Trading
Investments CUSIP/ Ticker Quantity Price $ Total Value $
place
Stocks
Johnson & Johnson JNJ NYSE 300 57.69 17,307
Wal-Mart WMT NYSE 300 47.12 14,136
Mc Donald's MCD NYSE 300 58.02 17,406
Family Dollar Stores FDO NYSE 250 27.77 6,943
JP Morgan & Chase Co. JPM NYSE 400 25.51 10,204
Mutual Funds
Legg Mason Opportunity Primary LMOPX NYSE 1,000 4.82 4,820
T. Rowe Price Growth Stock PRGFX NYSE 500 18.83 9,415
Corporate Bonds
General Electric 36962G3H5 NYSE 15 978.05 14,671
Pfizer 717081AR4 NYSE 15 1,085.47 16,282
T- Bills
13 weeks 912795L66 2 9,996.18 19,992
26 weeks 912795Q95 2 9,982.34 19,965
Options
Rio Tinto PLC RJTDC.X NYSE 200
Expire- 17
April, 2009
Strike- 115.00
CALL
JP Morgan Chase JSAOS.X NYSE 400
Expire- 20
March, 2009
Strike- 22.50
PUT
Total $ 151,140
Cash in hands $ 98,860
Total Portfolio value $ 250,000
NYSE Composite value 5,195.79
7
8. Week 1-2
January 30- February 6, 2009
Investments CUSIP/ Ticker Quantity Price $ Total Value $ Price $2 Total Value $3
Stocks
Johnson & Johnson JNJ 300 57.69 17,307 58.51 17,553
Wal-Mart WMT 300 47.12 14,136 49.63 14,889
Mc Donald's MCD 300 58.02 17,406 58.46 17,538
Family Dollar Stores FDO 250 27.77 6,943 26.92 6,730
JP Morgan & Chase Co. JPM 400 25.51 10,204 27.63 11,052
Mutual Funds
Legg Mason Opportunity
Primary LMOPX 1,000 4.82 4,820 5.09 5,090
T. Rowe Price Growth Stock PRGFX 500 18.83 9,415 20.06 10,030
Corporate Bonds
General Electric 36962G3H5 15 978.05 14,671 961.63 14,425
Pfizer 717081AR4 15 1,085.47 16,282 1,062.14 15,932
T- Bills
9,996.183
13 weeks 912795L66 2 19,992 9,993.70 19,987
26 weeks 912795Q95 2 9,982.34 19,965 9,980.93 19,962
Options
Rio Tinto PLC RJTDC.X 200
Expire- 17 April,
2009
Strike- 115.00
CALL
JP Morgan Chase JSAOS.X 400
Expire- 20 March,
2009
Strike- 22.50
PUT Jan 30, 2009 Feb 6, 2009
Total $ 151,140 $ 153,188
98,8984
Cash in hands $ 98,860 $
Total portfolio value $ 250,000 $ 252,086
1- week portfolio return 0.8344%
NYSE Composite value 5,195.79 5,475.28
1- week NYSE Composite return 5.3792%
3
T-bill price calculation is shown in Appendix-2
4
For cash in portfolio, BCLR (Brokers cash loan rate) is used to find its FV. Calculation is shown in Appendix-2
8
9. Week 2-3
February 6- February 13, 2009
Investments CUSIP/ Ticker Quantity Price $ Total Value $ Price $2 Total Value $3
Stocks
Johnson & Johnson JNJ 300 58.51 17,553 57.1 17,130
Wal-Mart WMT 300 49.63 14,889 46.53 13,959
Mc Donald's MCD 300 58.46 17,538 56.81 17,043
Family Dollar Stores FDO 250 26.92 6,730 26.61 6,653
JP Morgan & Chase Co. JPM 400 27.63 11,052 24.69 9,876
Mutual Funds
Legg Mason Opportunity
Primary LMOPX 1,000 5.09 5,090 4.79 4,790
T. Rowe Price Growth Stock PRGFX 500 20.06 10,030 19.53 9,765
Corporate Bonds
General Electric 36962G3H5 15 961.63 14,425 974.74 14,621
Pfizer 717081AR4 15 1,062.14 15,932 1,103.10 16,547
T- Bills
13 weeks 912795L66 2 9,993.70 19,987 9,993.50 19,987
26 weeks 912795Q95 2 9,980.93 19,962 9,977.80 19,956
Options
Rio Tinto PLC RJTDC.X 200 12.5 2,500
Expire- 17 April,
2009
Strike- 115.00
CALL
JP Morgan Chase JSAOS.X 400 1.73 692
Expire- 20 March,
2009
Strike- 22.50
PUT Feb 6, 2009 Feb 13, 2009
Total $ 153,188 $ 153,518
95,7435
Cash in hands $ 98,898 $
Total portfolio value $ 252,086 $ 249,261
1- week portfolio return -1.1208%
NYSE Composite value 5,475.28 5,206.76
1- week NYSE Composite return -4.9042%
5
Adjusted by adding options RJTDC.X & JSAOS.X to portfolio
9
10. Week 3-4
February 13- February 20, 2009
Investments CUSIP/ Ticker Quantity Price $ Total Value $ Price Total Value $2
Stocks
Johnson & Johnson JNJ 300 57.1 17,130 54.65 16,395
Wal-Mart WMT 300 46.53 13,959 50.02 15,006
Mc Donald's MCD 300 56.81 17,043 54.57 16,371
Family Dollar Stores FDO 250 26.61 6,653 27.02 6,755
JP Morgan & Chase Co. JPM 400 24.69 9,876 19.9 7,960
Mutual Funds
Legg Mason Opportunity
Primary LMOPX 1,000 4.79 4,790 3.99 3,990
T. Rowe Price Growth Stock PRGFX 500 19.53 9,765 18.54 9,270
-
Corporate Bonds
969.846
General Electric 36962G3H5 15 974.74 14,621 14,548
Pfizer 717081AR4 15 1,103.10 16,547 1062.62 15,939
T- Bills/ Bonds
13 weeks 912795L66 2 9,993.50 19,987 9,994.67 19,989
26 weeks 912795Q95 2 9,977.80 19,956 9,978.18 19,956
30 years T- bond 912810QA9 15 992.65 14,890
Options
Rio Tinto PLC RJTDC.X 200 12.5 2,500 9.6 1,920
Expire- 17 April,
2009
Strike- 115.00
CALL
JP Morgan Chase JSAOS.X 400 1.73 692 5.4 2,160
Expire- 20 March,
2009
Strike- 22.50
PUT Feb 13, 2009 Feb 20, 2009
Total $ 153,518 $ 165,149
$
80,8847
Cash in hands $ 95,743
Total Portfolio value $ 249,261 $ 246,033
1- week portfolio return -1.2947%
NYSE Composite value 5,206.76 4,804.51
1- Week NYSE composite return -7.7255%
6
Bond price calculation shown in Appendix-2
7
Adjusted by buying 30 year treasury bonds
10
11. Week 4-5
February 20- February 27, 2009
Investments CUSIP/ Ticker Quantity Price $ Total Value $ Price Total Value $2
Stocks
Johnson & Johnson JNJ 300 54.65 16,395 50 15,000
Wal-Mart WMT 300 50.02 15,006 49.24 14,772
Mc Donald's MCD 300 54.57 16,371 52.25 15,675
Family Dollar Stores FDO 250 27.02 6,755 27.44 6,860
JP Morgan & Chase Co. JPM 400 19.9 7,960 22.85 9,140
Mutual Funds
Legg Mason Opportunity
Primary LMOPX 1,000 3.99 3,990 3.9 3,900
T. Rowe Price Growth Stock PRGFX 500 18.54 9,270 17.75 8,875
-
Corporate Bonds
General Electric 36962G3H5 15 969.84 14,548 887.9 13,319
Pfizer 717081AR4 15 1062.62 15,939 1,065.47 15,982
T- Bills/ Bonds
13 weeks 912795L66 2 9,994.67 19,989 9,997.50 19,995
26 weeks 912795Q95 2 9,978.18 19,956 9,979 19,958
30 years T- bond 912810QA9 15 992.65 14,890 $ 992.70 14,891
Options
Rio Tinto PLC RJTDC.X 200 9.6 1,920 7.3 1,460
Expire- 17 April,
2009
Strike- 115.00
CALL
JP Morgan Chase JSAOS.X 400 5.4 2,160 1.98 792
Expire- 20 March,
2009
Strike- 22.50
PUT Feb 20, 2009 Feb 27, 2009
Total $ 165,149 $ 160,618
Cash in hands $ 80,884 $ 80,915
Total Portfolio value $ 246,033 $ 241,533
1- week portfolio return -1.8291%
NYSE Composite value 4,804.51 4,617.03
1- Week NYSE composite return -3.9022%
11
12. Week 5-6
February 27- March 6, 2009
Investments CUSIP/ Ticker Quantity Price $ Total Value Price Total Value2
Stocks
Johnson & Johnson JNJ 300 50 15,000 47.97 14,391
Wal-Mart WMT 300 49.24 14,772 48.91 14,673
Mc Donald's MCD 300 52.25 15,675 52.12 15,636
Family Dollar Stores FDO 250 27.44 6,860 30.36 7,590
JP Morgan & Chase Co. JPM 400 22.85 9,140 15.93 6,372
Mutual Funds
Legg Mason Opportunity
Primary LMOPX 1,000 3.9 3,900 3.37 3,370
T. Rowe Price Growth Stock PRGFX 500 17.75 8,875 16.99 8,495
Corporate Bonds
General Electric 36962G3H5 15 887.9 13,319 797.54 11,963
Pfizer 717081AR4 15 1,065.47 15,982 1,048.31 15,725
T- Bills/ Bonds
13 weeks 912795L66 2 9,997.50 19,995 9,995.64 19,991
26 weeks 912795Q95 2 9,979 19,958 9,982.03 19,964
30 years T- bond 912810QA9 15 $ 992.70 14,891 994.6 14,919
Options
Rio Tinto PLC RJTDC.X 200 7.3 1,460 6.4 1,280
Expire- 17 April,
2009
Strike- 115.00
CALL
JP Morgan Chase JSAOS.X 400 1.98 792 8.25 3,300
Expire- 20 March,
2009
Strike- 22.50
PUT Feb 27, 2009 March 6, 2009
Total $ 160,618 $ 157,669
Cash in hands $ 80,915 $ 80,946
Total portfolio value $ 241,533 $ 238,615
1- week portfolio return -1.2080%
NYSE Composite value 4,617.03 4,284.49
1- week NYSE composite return -7.2025%
12
13. Week 6-7
March 6- March 13, 2009
Investments CUSIP/ Ticker Quantity Price $ Total Value Price Total Value2
March 6, March
Stocks 2009 13, 2009
Johnson & Johnson JNJ 300 47.97 14,391 50.64 15,192
Wal-Mart WMT 300 48.91 14,673 49.19 14,757
Mc Donald's MCD 300 52.12 15,636 52.38 15,714
Family Dollar Stores FDO 250 30.36 7,590 31.52 7,880
JP Morgan & Chase Co. JPM 400 15.93 6,372
Genentech Inc. DNA 125 - 94.2 11,775
General Mills Inc. GIS 200 - 52.6 10,520
- -
Mutual Funds
Legg Mason Opportunity
Primary LMOPX 1,000 3.37 3,370
T. Rowe Price Growth Stock PRGFX 500 16.99 8,495 18.34 9,170
Vanguard Short term bond
index VBISX 1,000 - 10.18 10,180
- -
Corporate Bonds
General Electric 36962G3H5 15 797.54 11,963 898.125 13,472
Pfizer 717081AR4 15 1,048.31 15,725 1,037.68 15,565
- -
- -
T- Bills/ Bonds
13 weeks 912795L66 2 9,995.64 19,991 9,997.17 19,994
26 weeks 912795Q95 2 9,982.03 19,964 9,983.78 19,968
30 years T- bond 912810QA9 15 994.6 14,919 969.69 14,545
-
- -
Options
Rio Tinto PLC RJTDC.X 200 6.4 1,280 -
Expire- 17 April,
2009 - -
Strike- 115.00 - -
CALL - -
JP Morgan Chase JSAOS.X 400 8.25 3,300 -
Expire- 20 March,
2009 -
Strike- 22.50 -
PUT -
McDonald's 300 0.25 75
MCDOJ.X Expire-
March 20, 2009
Strike- 50.00
BOUGHT PUT
Total $ 157,669 $ 178,807
63,017 8
Cash in hands $ 80,946 $
Total Portfolio value $ 238,615 $ 241,824
1- week portfolio return 1.3450%
NYSE Composite Return 4,284.49 4,721
1- week NYSE Composite return 10.1881%
8
Adjusted by proceeds from sale of 400 shares of JPM @ $23.75 (Subtracting call premium of $400), 200 call options of RTP @ $6.8, 1000
mutual fund shares of LMOPX @ $4.11 & further investing in GIS, DNA, VBISX & MCDOJ.X
13
14. Week 7-8
March 13- March 20, 2009
Investments
CUSIP/ Ticker Quantity Price Total Value Price2 Total Value3
Stocks March 13 March 20
Johnson & Johnson JNJ 300 50.64 15,192 51.67 15,501
Wal-Mart WMT 300 49.19 14,757 49.59 14,877
Mc Donald's MCD 300 52.38 15,714 53.2 15,960
Family Dollar Stores FDO 250 31.52 7,880 30.86 7,715
Genentech Inc. DNA 125 94.2 11,775 93.72 11,715
General Mills Inc. GIS 200 52.6 10,520 47.22 9,444
-
Mutual Funds
T. Rowe Price Growth Stock PRGFX 500 18.34 9,170 18.57 9,285
Vanguard Short term bond index VBISX 1000 10.18 10,180 10.24 10,240
-
Corporate Bonds
General Electric 36962G3H5 15 898.125 13,472 916.082 13,741
Pfizer 717081AR4 15 1,037.68 15,565 1,054.11 15,812
-
T- Bills/ Bonds
13 weeks 912795L66 2 9,997.17 19,994 9,997.57 19,995
26 weeks 912795Q95 2 9,983.78 19,968 9,985 19,970
30 years T- bond 912810QA9 15 969.69 14,545 975.62 14,634
-
-
Options
-
McDonald's MCDOJ.X Expire- 300 0.25 75 0.05
March 20, 2009 15
Strike- 50.00
BOUGHT PUT
Total 178,807 178,904
Cash in hands 63,017 63,041
Total Portfolio value 241,824 241,946
1- week portfolio return 0.0501%
NYSE Composite value 4,721 4,832.13
1- week NYSE composite return 2.3540%
14
15. Week 8-9
March 20- March 27, 2009
Investments CUSIP/ Ticker Quantity Price Total Value Price2 Total Value3
Stocks March 20 March 27
Johnson & Johnson JNJ 300 51.67 15,501 52.83 15,849
Wal-Mart WMT 300 49.59 14,877 52.57 15,771
Mc Donald's MCD 300 53.2 15,960 55.01 16,503
Family Dollar Stores FDO 250 30.86 7,715 33.63 8,408
- -
Genentech Inc. DNA 125 93.72 11,715 -
General Mills Inc. GIS 200 47.22 9,444 50.85 10,170
Mutual Funds
-
T. Rowe Price Growth Stock PRGFX 500 18.57 9,285 19.9 9,950
Vanguard Short term bond
index VBISX 1000 10.24 10,240 10.23 10,230
Corporate Bonds
General Electric 36962G3H5 15 916.082 13,741 909.014 13,635
Pfizer 717081AR4 15 1,054.11 15,812 1053.89 15,808
T- Bills/ Bonds
13 weeks 912795L66 2 9,997.57 19,995 9998.62 19,997
26 weeks 912795Q95 2 9,985 19,970 9986.665 19,973
30 years T- bond 912810QA9 15 975.62 14,634 982.91 14,744
Options
- -
McDonald's MCDOJ.X Expire- 300 0.05 15 0.4 120
May 15, 2009 Strike-
50.00 BOUGHT
PUT
Total $ 178,904 $ 171,158
74,780 9
Cash in hands $ 63,041 $
Total Market value of portfolio $ 241,945 $ 245,939
1 week portfolio return 1.6505%
NYSE Composite value 4,832.13 5,096.64
1 week NYSE composite return 5.4740%
9
Adjusted by proceeds of 125 shares of DNA @ $ 93.72
15
16. Week 9-10
March 27- April 3, 2009
Investments CUSIP/ Ticker Quantity Price Total Value Price2 Total Value3
Stocks March 27 April 3
Johnson & Johnson JNJ 300 52.83 $ 15,849 52.15 $ 15,645
Wal-Mart WMT 500 52.57 $ 15,771 53.8 $ 26,900
Mc Donald's MCD 500 55.01 $ 16,503 56.64 $ 28,320
Family Dollar Stores FDO 250 33.63 $ 8,408 31.9 $ 7,975
General Mills Inc. GIS 200 50.85 $ 10,170 50.86 $ 10,172
Mutual Funds
T. Rowe Price Growth Stock PRGFX 500 19.9 $ 9,950 19.99 $ 9,995
Vanguard Short term bond
index VBISX 1000 10.23 $ 10,230 10.24 $ 10,240
Corporate Bonds
General Electric 36962G3H5 15 909.014 $ 13,635 879.04 $ 13,186
Pfizer 717081AR4 15 1053.89 $ 15,808 1046.8 $ 15,702
T- Bills/ Bonds
13 weeks 912795L66 2 9998.62 $ 19,997 9998.38 $ 19,997
26 weeks 912795Q95 2 9986.665 $ 19,973 9986.41 $ 19,973
30 years T- bond 912810QA9 15 982.91 $ 14,744 968.65 $ 14,530
Options
McDonald's MCDOJ.X 500 0.4 $ 120 0.15 $ 75
Expire- May
15, 2009 Strike-
50.00
BOUGHT PUT
Total $ 171,158 $ 192,709
$
52,72110
Cash in hands $ 74,780
Total market value of
portfolio $ 245,938 $ 245,430
1 week portfolio return -0.2068%
NYSE Composite value 5096.64 5318.75
NYSE Composite return 1 week 4.3580%
10
Adjusted by buying 200 additional shares of each WMT & MCD
16
17. Week 10-11
April 3- April 10, 2009
Total Value Price2 Total Value3
Investments CUSIP/ Ticker Quantity Price
April 10
Stocks April 3
15,645 51.41 15,423
Johnson & Johnson JNJ 300 52.15
26,900 50.66 25,330
Wal-Mart WMT 500 53.8
28,320 56.67 28,335
Mc Donald's MCD 500 56.64
7,975 34.33 8,583
Family Dollar Stores FDO 250 31.9
10,172 50.84 10,168
General Mills Inc. GIS 200 50.86
Mutual Funds
9,995 20.39 10,195
T. Rowe Price Growth Stock PRGFX 500 19.99
10,240 10.23 10,230
Vanguard Short term bond index VBISX 1000 10.24
Corporate Bonds
13,186 912.08 13,681
General Electric 36962G3H5 15 879.04
15,702 1071.0531 16,066
Pfizer 717081AR4 15 1046.8
T- Bills/ Bonds
19,997 9998.93 19,998
13 weeks 912795L66 2 9998.38
19,973 9987.84 19,976
26 weeks 912795Q95 2 9986.41
14,530 960.59 14,409
30 years T- bond 912810QA9 15 968.65
Options
McDonald's MCDOJ.X 500 0.15 75 0.03 15
Expire- May 15,
2009 Strike- 50.00
BOUGHT PUT
Total $ 192,709 $ 192,408
Cash in hands $ 52,721 $ 52,741
Total Market value of portfolio $ 245,430 $ 245,149
1 week portfolio return -0.1144%
NYSE Composite value 5,319 5,376.44
NYSE Composite return 1 week 1.0847%
17
18. Week 11-12
April 10- April 17, 2009
Total Value Price2 Total Value3
Investments CUSIP/ Ticker Quantity Price
April 17
Stocks April 10
51.41 15,423 53.05 15,915
Johnson & Johnson JNJ 300
50.66 25,330 50.2 25,100
Wal-Mart WMT 500
56.67 28,335 56.09 28,045
Mc Donald's MCD 500
34.33 8,583 32.82 8,205
Family Dollar Stores FDO 250
50.84 10,168 49.89 9,978
General Mills Inc. GIS 200
Mutual Funds
20.39 10,195 20.6 10,300
T. Rowe Price Growth Stock PRGFX 500
10.23 10,230 10.28 10,280
Vanguard Short term bond
index VBISX 1000
Corporate Bonds
912.08 13,681 904.62 13,569
General Electric 36962G3H5 15
1071.0531 16,066 1065.79 15,987
Pfizer 717081AR4 15
T- Bills/ Bonds
9998.93 19,998 9999.45 19,999
13 weeks 912795L66 2
9987.84 19,976 9990.0542 19,980
26 weeks 912795Q95 2
960.59 14,409 951.77 14,277
30 years T- bond 912810QA9 15
Options
McDonald's MCDOJ.X 500 0.03 15 0.05 25
Expire- May 15,
2009 Strike- 50.00
BOUGHT PUT
192,408 191,660
Total Value
52,741 52,761
Cash in hands
245,149 244,421
Total Portfolio value
-0.2969%
1 week portfolio return
5,376.44 5,480.60
NYSE Composite Value
1.9373%
NYSE Composite 1 week return
18
19. Week 12-13
April 17- April 24, 2009
Investments CUSIP/ Ticker Quantity Price Total Value Price2 Total Value3
Stocks April 17 April 24
53.05
Johnson & Johnson JNJ 300 15,915 50.92 15,276
50.2
Wal-Mart WMT 500 25,100 47.87 23,935
56.09
Mc Donald's MCD 500 28,045 54.31 27,155
32.82
Family Dollar Stores FDO 250 8,205 32.79 8,198
49.89
General Mills Inc. GIS 200 9,978 48.73 9,746
Mutual Funds
20.6
T. Rowe Price Growth Stock PRGFX 500 10,300 20.83 10,415
10.28
Vanguard Short term bond index VBISX 1000 10,280 10.27 10,270
Corporate Bonds
904.62
General Electric 36962G3H5 15 13,569 905.3 13,580
1065.79
Pfizer 717081AR4 15 15,987 1066.42 15,996
T- Bills/ Bonds
9999.45
13 weeks 912795L66 2 19,999 9999.79 20,000
9990.0542
26 weeks 912795Q95 2 19,980 9991.425 19,983
951.77
30 years T- bond 912810QA9 15 14,277 939.551 14,093
Options
McDonald's MCDOJ.X Expire- 500 0.05 25 0.3
May 15, 2009 150
Strike- 50.00
BOUGHT PUT
$
Total Value $ 191,660 188,796
$
Cash in hands $ 52,761 52,781
$
Total Portfolio value $ 244,421 241,577
1 week portfolio return -1.1633%
NYSE composite value 5,480.60 5,468.41
1 week NYSE composite return -0.2224%
19
20. Week 13-14
April 24- May 1, 2009
Investments CUSIP/ Ticker Quantity Price Total Value Price2 Total Value3
Stocks April 24 May 1
Johnson & Johnson JNJ 300 50.92 15,276 52.59 15,777
Wal-Mart WMT 500 47.87 23,935 50.05 25,025
Mc Donald's MCD 500 54.31 27,155 52.4 26,200
Family Dollar Stores FDO 250 32.79 8,198 32.14 8,035
General Mills Inc. GIS 200 48.73 9,746 50.48 10,096
Mutual Funds
T. Rowe Price Growth Stock PRGFX 500 20.83 10,415 21.11 10,555
Vanguard Short term bond
index VBISX 1000 10.27 10,270 10.28 10,280
Corporate Bonds
General Electric 36962G3H5 15 905.3 13,580 903.732 13,556
Pfizer 717081AR4 15 1066.42 15,996 1079.57 16,194
T- Bills/ Bonds
13 weeks 912795L66 2 9999.79 20,000 10,000 20,000
26 weeks 912795Q95 2 9991.425 19,983 9992.366 19,985
30 years T- bond 912810QA9 15 939.551 14,093 907.727 13,616
Options
McDonald's MCDOJ.X Expire- 500 0.3 150 0.4 200
May 15, 2009
Strike- 50.00
BOUGHT PUT
Total Value 188,796 189,518
Cash in hands 52,781 52,801
Total portfolio value 241,577 242,319
1- week portfolio return 0.3074%
NYSE Composite Value 5,480.60 5,568.76
1- week NYSE composite return 1.6086%
20
21. Portfolio Beta estimation
As of May 1, 2009
CUSIP/
Investments
Ticker Quantity Total Value Weight Wi Beta Bi Wi*Bi
Stocks
Johnson & Johnson JNJ 300 15,777 0.065108 0.59 0.038413792
Wal-Mart WMT 500 25,025 0.103273 0.23 0.023752682
Mc Donald's MCD 500 26,200 0.108121 0.65 0.07027897
Family Dollar Stores FDO 250 8,035 0.033159 0.23 0.007626486
General Mills Inc. GIS 200 10,096 0.041664 0.27 0.011249257
Mutual Funds
T. Rowe Price Growth
Stock PRGFX 500 10,555 0.043558 1.01 0.043993686
Vanguard Short term
bond index VBISX 1000 10,280 0.042423 0.53 0.022484318
Corporate Bonds11
General Electric 36962G3H5 15 13,556 0.055943 1.19 0.066571641
Pfizer 717081AR4 15 16,194 0.066829 0.118 0.00788582
T- Bills/ Bonds12
13 weeks 912795L66 2 20,000 0.082535 0 0
26 weeks 912795Q95 2 19,985 0.082474 0 0
30 years T- bond 912810QA9 15 13,616 0.056190 0 0
Options13
200 0.000825 0.4225 0.000348712
McDonald's MCDOJ.X 500
Expire- May
15, 2009
Strike- 50.00
BOUGHT
PUT
0.217898 0
52,801 0
Cash
Portfolio Beta=
∑ Wi * Bi
$
Total Portfolio value 242,320 1.000000 = 0.2926
11
Bond‟s beta BD= BL-BU; where BL was found to be from Yahoo! Finance and BU can be calculated using Hamada‟s equation
BL= BU [ 1+ (1-Tax rate) * LTD/ Equity ]
12
Beta of Government securities and cash are almost zero as they are assumed to be risk free
13
We have assumed beta of a put option as 0.65* respective stock‟s beta
21
22. 12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
1 2 3 4 5 6 7 8 9 10 11 12 13
-2.00%
-4.00%
-6.00%
-8.00%
-10.00%
Theoratical portfolio return acc. To beta NYSE Composite index return
Real portfolio return
In above chart, we calculated theoretical return on our portfolio according to its overall beta.
That goes well together with real portfolio return that we got. Differences are because of higher
volatility of market and securities changes during the period that we did not consider counting
real return on portfolio.
So, theoretical portfolio return line shows the expected return on portfolio which we found
greater than that real return on portfolio over the 14- week period. This phenomenon is further
explained by CAPM analysis which we will discuss later.
22
23. Individual securities analysis
General Electric Co. (NYSE: GE)
General Electric Company (GE) operates as a technology, media, and financial services company
worldwide. Its Energy Infrastructure segment produces gas, steam, and aero derivative turbines;
generators; and combined cycle systems, as well as provides water treatment services and
equipment. This segment also sells surface and subsea drilling and production systems, floating
production platform equipment, compressors, turbines, turbo expanders, and high pressure
reactors to national, international, and independent oil and gas companies; and offers equipment
overhauls and upgrades, pipeline inspection and integrity services, remote diagnostic and
monitoring, and contractual service agreements. The company’s Technology Infrastructure
segment manufactures jet engines, aerospace systems and equipment, and its replacement parts,
as well as provides repair and maintenance services for commercial aircraft; military aircraft,
including fighters, bombers, tankers, and helicopters; marine applications; and executive and
regional aircraft.
GE Segments' revenues 2008 in $ millions
$80,000
$60,000
$40,000
$20,000
$-
Energy Technology NBC Universal Capital Consumer &
Infrastructure Infrastructure Finance Industrial
This segment also produces healthcare products, including diagnostic imaging systems; offers
transportation products and maintenance services; provides enterprise solutions using sensors for
temperature, pressure, moisture, gas and flow rate, as well as non-destructive testing inspection
equipment. GE’s NBC Universal segment engages in the production and distribution of films and
television programs; operation of television stations and cable/satellite television networks, as
well as theme parks. The company’s Capital Finance segment offers loans, leases, and other
financial services to customers, including manufacturers, distributors, and end-users of
23
24. equipment and major capital assets. Its Consumer & Industrial segment produces various house
hold appliances, lighting products, and electrical equipment and control products, as well as
provides related services. The company was founded in 1892 and based in Fairfield, Connecticut.
Beta (Risk)
Risks to our recommendation and target price include the possibility of a deeper than expected
Global recession, as well as greater than expected credit losses in Capital Finance.
Bl LTD Equity Tax Rate
1.46 $330,067,000,000 $104,665,000,000 5.5%
Hamada’s equation: Bl= Bu { 1+ (1-Tax rate) LTD/Equity }
So, Bu was found to be 0.367
Higher beta of 1.46 supports the above technical chart analysis of stock price of GE compared to
DJI. GE has high risks compared to market. So, when market goes down like in current
recessionary situation, GE stock price sinks more than a market does.
Firm‟s business risk contains no leverage. It is the risk related to its operations. While levered
beta contains both financial risks and business risks. Company‟s lower equity portion as
compared to that of long term debt, shows its higher financial risk (Bl-Bu= 1.093)
24
25. Industry Analysis & impact of current economy
The volume of the electricity generated in US is expected to increase at about 1% annually in the
five years through 2009. The industry will experience a medium level of volatility over this
period with the annual real change in the revenue ranging from a decrease of 10.30% to increase
of 4.9%.
The impact of the current recession on this industry will be negative. The lower level of the
commercial property development, rising level of unemployment, falling company profits, have
in particular had a hard hit on the company. Lower level of capital expenditure will be reduced in
the light of the recession which will drag down industry growth further. A slower global
economy will also impact the export markets. Sales in the electrical equipment will be impacted
by a downtown in the residential building activity and industrial production.
The top five players account for the 33% of the industry revenue. Out of which GE contribution
is 7.1%. The main factors affecting the industry performance is the downstream demand,
industrial production index and the real GDP growth. 14
Company analysis & influence from financial & economic events
G.E.'s industrial business is buffered from the cycles of big-ticket equipment orders by its
services business, which involves maintaining, repairing and upgrading industrial products. In
fact, services account for 30 percent of the revenue of G.E.'s industrial businesses, and 70
percent of the profits. Profits at G.E.'s media and entertainment unit, NBC Universal, fell 45
percent, pulled down by weak advertising for broadcast television and online and declining
attendance at its theme parks.
Profit margins fell in 2005, despite slow growth in labor costs, due to increases in material costs,
which were not fully passed on to customers in the form of higher unit selling prices due in part
14
http://www.geconsumerproducts.com/pressroom/press_releases/company/company/ge_estaraward
_2009.htm
2
IBIS World, Industry outlook, SIC Code 33531
www.ge.com
25
26. to competitive pressures from imports. Industry profit margins are expected to improve in 2006
through 2007 due to: continued real growth in revenue; a greater concentration on higher margin
products; improved pricing; industry consolidation; and the impact of company productivity and
cost initiatives (such as from previous reductions in employee numbers, which increased revenue
per employee). Profit margins will come under some pressure in 2008 due to higher raw material
prices and a slowdown in sales in the last quarter. Margins in 2009 will be impacted by a
decrease in sales and in capacity utilization. The value of total US imports of electrical
equipment is expected to increase at an average annualized real rate of 5.1% in the five years
through 2009. China increased its share of imports of industry products into the US, from 9.9%
in 2004 to 14.6% in 2008.
Product and service differentiation & diversification through globalization
GE offers one of the most comprehensive portfolios of product for the energy industry. It offers
technology for oil and gas, fossil, nuclear, solar and wind applications. It works after providing
the most innovative ways to produce efficient and reliable power. Thus it helps the world that‟s
demands a reliable supply of clean and dependable power. It moves from providing a simple
maintenance service to sophisticated technology upgrades.
2008 Revenues in $ billions
US Europe Pacific Basin Middle East & Africa Americas Other Global
3%
5%
8%
47%
13%
24%
Source: GE Annual report 2008 1
The U.S. Department of Energy and the U.S. Environmental Protection Agency have awarded
GE Consumer & Industrial the ENERGY STAR® Sustained Excellence award for the fourth
straight year. Also this marks the sixth year GE has been acknowledged as an ENERGY STAR
26
27. Partner of the Year. These awards recognize GE's tremendous efforts to create high-performance
household appliance and lighting products that help reduce energy spending and protect the
environment.
GE has introduced a new product that is first incandescent-shaped energy smart CFL bulb. It
accepts this product to be accepted by the people that want the energy savings and long life
performance. GE Consumer and Industrial span the globe as an industry leader in major
appliances, lighting and integrated industrial equipment, system and services. Thus GE initiatives
to aggressively bring the market new technologies that help consumers meet pressing
environment challenges, to deliver comfort, convenience and electrical protection and control.
Thus being consumer oriented helps it to gain more profitability and thereby bringing it market
share to boost.
GE Global Exchange Services and GE Systems Services, to enter the burgeoning worldwide
market for business-to-business e-commerce. Through the effort, GE plans to compete with the
upstart leaders in the market, Commerce One and Ariba. GE Global Exchange Services will
focus on four markets: Internet data exchange, enterprise application integration software,
procurement software and services, and trading partner exchanges. GE Systems Services will
provide global technology support to GE Global Exchange Services activities.
Competitive analysis
Siemens is Europe's largest electronics and electrical engineering company with worldwide
operations in the industrial automation and control, information and communications, lighting,
medical, power transmission, and transportation sectors. In the year ended September 30, 2007,
Siemens generated net sales of approximately US$105.9 billion. The company's US subsidiaries
accounted for 21.7% of consolidated net sales in fiscal 2007, and the US accounted for 35.2% of
consolidated non-current assets. The company has recently focused on expanding operations in
the US and has reorganized their US operations as Siemens Corporation.
Citigroup Inc. doing business as Citi, provides a range of financial products and services to
consumers and corporate customers. It mainly does its business through four segments: Global
Cards, Consumer Banking, Institutional Clients Group and Global Wealth Management. Thus it
involves itself in providing a wide range of services including the various credit cards, consumer
27
28. financing, loans, securities and banking activities to advisory financial planning and wealth
management.
Electric equipment manufacturers in the US; Market share 2008
Rockwell Automation, Inc.
9% General Electric Company
7%
Siemens AG ADS
6%
ABB, Limited ADR
6%
Eaton Corporation
5%
58%
Baldor Electric Company
4% Schneider Electric SA
2% 3% Cooper Industries Limited
Source: IBIS World , FDU online library 1
Citi announced today it is providing direct custody and clearing services (DCC) to clients in the
Ukraine. This is the eighth new market Citi has opened in two years taking its proprietary
network – the largest in the world – to 52 markets. Citi currently serves 27 markets in Europe,
the Middle East and Africa. This will help it to give better services to its members and get hold
to profitable profits and maintain the high quality of the services. This helps the capital market
by providing the services required by the broker dealers and global custodian to support the
trading and the investment activities around the world. Global Transaction Services offers
integrated cash management, trade, and securities and fund services to multinational
corporations, financial institutions and public sector organizations around the world. With a
network spanning over 100 countries, Citi's Global Transaction Services supports over 65,000
clients. As of 4th quarter 2007, it held on average $245 billion in liability balances and $13.1
trillion in assets under custody. 15
3
http://www.citigroup.com/transactionservices/home/about_us/press_room/current/2008_0416.jsp
28
29. Options
Yes. There are options available on stock of GE.
Maximum volume of call options were found to be in the money and put options were found to
be out of the money. This volume trading of options indicates that investors expect the stock
price of GE to go down from its current price of $12.69 as of May 1, 2009. So, we can say that
current GE stock may be overpriced.
Capital structure and Bond rating
As of December 2008,
Long term debt Short term debt Total Equity
330,067,000,000 248,610,000,000 104,665,000,000
Total Debt= 330,067,000,000 + 248,610,000,000 =$ 578,677,000,000
Debt in Capital Structure= Total debt/ Total debt + Total equity= 84.68% with 57% in long term
debt & 43% short term debt.
Rating Agency Bond rating
Standard & Poor’s AA+
AA
Fitch
Bond yield Vs. Treasury yield curve
We have taken following bond into consideration:
Price 105.00
Coupon rate 5%
Maturity date Feb 1, 2013
First coupon date Aug 1, 2003
29
30. Stock ratings
HOLD
The Street
Positive Buy
ValuEngine
D-F: Negative- lowest; Strongly underperform
Price Target research
in future
Standard & Poor’s HOLD with $ 14.00 12-month target price
Thus, we conclude that stock price of GE is likely to go up if you hold it for considerably long
term.
Upper Management Team
Jeffrey Immelt Chairman & CEO
Jeff Gaspin President
Peter Ehrenheim President
Keith Sherin SR VP & CFO
Michael Neal Vice Chairman
30
31. McDonald’s Corp. (NYSE: MCD)
We can conclude from above chart that MCD has almost doubled the stock returns over the last 5
years. Company‟s cost effective fast food for consumers, makes it give stable returns over last
year of bear market or recession. McDonald‟s Corporation, together with its subsidiaries,
franchises and operates McDonald‟s restaurants in the food service industry worldwide. Its
restaurants offer various food items, soft drinks, and coffee and other beverages. As of December
31, 2008, the company operated 31,967 restaurants in 118 countries, of which 25,465 were
operated by franchisees; and 6,502 were operated by the company. McDonald‟s Corporation was
founded in 1948 and is based in Oak Brook, Illinois.
Beta (Risk)
Bl LTD Equity Tax rate
10,186,000,000 13,382,000,000 30%
0.77
31
32. Hamada’s equation: Bl= Bu { 1+ (1-Tax rate) LTD/Equity }
Thus, Bu was found to be 0.5023
These betas near to market beta of 1, indicates the same volatility as the market has had since last
5 years. MCD has a volatility rank of 97, which is significantly higher than industry rank of 55.16
Firm‟s business risk contains no leverage. It is the risk related to its operations. While levered
beta contains both financial risk and business risk. Company‟s almost equal equity and long term
debt portions, show its considerable financial risk (Bl-Bu= 0.2677).
Industry analysis
By the turn of the century, in a single day an average of four out of every ten people frequented
an eating establishment, and the total portion of the American food dollar spent eating out had
grown to 45 percent. Despite being dominated in the advertising media by the mega fast-food
16
Value engine detailed research report MCD
32
33. chains, such as McDonald's, most restaurants remained small operations into the twenty-first
century.17
We believe that impact of current recession on the industry will be negative. Falling disposable
incomes and the increasingly frugal consumer, arising from the recession will see this industry
suffer in the current period. Consequently, consumers are likely to increase consumption of
foods cooked inside the home, thereby reducing their expenditure on eating out. Rising
unemployment and falling household incomes pose the biggest threat to industry growth, as
consumers become more wary of their spending habits. Further, the high level of market
saturation provides limited growth opportunities for expansion. Given that fast food outlets are
considerably cheaper compared to full-service restaurants, consumers will shift their eating-out
preferences to cheaper alternatives during the recessionary period. As a highly saturated industry
with low barriers to entry, industry participation and employment are expected to decrease as the
major franchised players continue to consolidate their operations in order to reduce competition.
The industry is labor intensive given the need for personal, face to face service and labor input in
all areas from acceptance of deliveries, order-taking, serving and cleaning, as well as in the
management of each store. Revenue volatility is low due to the very high household penetration
rate for quickservice meals. The industry also covers a wide variety of foodstyles, of appeal to
changing consumer tastes and demand.18
Company analysis & influence from financial & economic events
Since 2003, MCD has been on the move. It has come along with a stock price of $12.50 to $57.
Their ability to innovate in the food service cannot be matched by any of its competitors.
Although the market had too much move, the company‟s share is rising as investors are finding
safe heaven in the Big Mac. One of the reasons to hold is also the global exposure. The inclusion
of the „Plan to Win‟ since 2003 has shown a dynamic way in approaching the business.19
The strategy focused by McDonald has helped it in gaining higher sales, revenue and better
result for the shareholders. Major focusing in brand affordability, menu variety and other
choices it managed in increasing the global sales in spite of the present economic environment.
17
Business & Company resource center, FDU online library
18
IBIS World, Industry outlook, SIC Code 5812
19
http://www.cattlenetwork.com/Retail_Content.asp?contentid=289421)
33
34. Thus the strength of the alignment between the company, its franchisees and suppliers has been
the key to McDonalds‟s success over the years.
U.S. Bank and Wells Fargo & Co. both recently announced that they‟re offering new lending
programs that benefit McDonald‟s U.S. franchisees. The programs deliver favorable financing
options on restaurant acquisitions, rebuilds and relocations, equipment purchases and restaurant
improvements. Both banks also stressed that their payments, cash management, and savings and
checking accounts and other small-business products can also be tailored to the needs of
restaurant franchises.20
The stock price knocked down 14% because the company did so well in the first half of the last
year that it was to match the growth rate. But the recent fall in the stock price is just because of
the pathole in the drive through lane. McDonald strives to manage its momentum even in this
economy. Month after month it has shown stronger than expected sales in the United States and
abroad. Lastly the company had delivered a 55 consecutive monthly of increase in the global
same store sales. The share of McDonald gained nearly 6% making the company one of the only
two in the Dow Jones industrial average whose share price rose in 2008. The relentless focus in
the recent years in improving the store operation and measuring progress has helped the
company strive long. New service and meal menu is another reason for the companies keeping
up. Thus it is the motto of quality, service, cleanliness and value that keeps it going. The
external factors including the unprecedented volatility in foreign currency rates and commodity
cost will bring the pressure on the revenue and the margin comparison on the company that
would that would in turn affect the stock prices in the market.
Product and service differentiation & diversification through globalization
The global comparable sales of MCD increased 7.1% in January, 2009. In addition, the sales for
the MCD worldwide restaurant were up by 2.6%. MCD continues to appeal to the customers by
offering high quality, affordable meal options and unparalleled convenience. The better
20
http://moneycentral.msn.com/content/P118107.asp
http://www.aboutmcdonalds.com/mcd/media_center.html
34
35. performance of McDonald‟s was the result of the convenient operating hours, combination of the
menu offerings and promotional activities.
2008 Revenues in $ millions
6%
18% 34%
U.S.
Europe
APMEA
42% Other Countries
Source: MCD 2008 Annual report 1
McDonald provides a great diversification in its services. Most of the restaurants are both
counter and drive through with indoor and sometimes outdoor seating. It includes various theme
restaurants like Rock and Roll and the 50‟s theme. Moreover the business model is slightly
different from the most of the other fast food chains. Moreover McDonald serves the society by
meeting its varied needs whether it‟s pertaining to its taste or the rituals.21
Competitive analysis
Burger King is a global chain of fast food hamburger restaurants, which ranked No. 2 in the
world behind McDonald‟s. The company has some 11,565 in the U.S. and more than 70
countries, of which 1,260 are company owned and 10,205 are franchised. Burger King has
established several subsidiaries to develop strategic partnerships and alliances to expand into
new territories; in Europe, Burger King's subsidiary Burger King Europe GmbH is responsible
for the licensing and development of BK franchises in the that market, Africa and Western Asia.
21
http://www.spiritus-temporis.com/mcdonald%27s/emblem-for-globalization.html
35
36. In Asia, the BK AsiaPac, PTE. Ltd. business unit handles franchising for East Asia, the Asian
subcontinent and all Oceanic territories except Australia. Burger king was nominated as the best
licensee of the year. This has helped it in providing the services with great speed and also
addition of the new product and the new territories.22
Market Share in %, 2008
McDonald's Corp.
13% Yum1 Brands, Inc.
10% Wendy's/Arby's Group, Inc.
6%
52% Starbucks Corp.
6% Burger King Corp.
5% Doctor's Associates Inc.
5%
Domino's Inc.
Jack in the box, Inc.
Other
2%
1%
Source: IBIS World, Fast food restaurant 1
Burger king franchisee has improved the speed of service and operational intelligence with the
help of PAR Technology which is an completely integrated technology solution. Through this
system the counter along with the back office activities can be carried on simultaneously with
ease and speed. It helps in managing the labor, inventory and in store production. Thus it has
helped the firm in gaining the operational efficiencies thereby giving customer satisfaction and
improvisation of the speed of service.
McDonalds opened at $54.05. So far today, the stock has hit a low of $53.03 and a high of
$54.14. Over the last 52 weeks the stock has ranged from a low of $45.79 to a high of $67.00.
22
http://www.marketintelligencecenter.com/articles/826583
http://www.ecommercetimes.com/story/10062.html
www.nytimes.com
36
37. Shares of MCD are trading lower after competitor Burger King Holdings reported preliminary
third-quarter revenue of $600 million.
Options
Yes. There are options available on the stock of this firm.
When we observe options trading for the firm, the higher volume traded options are found to be
out of money. After observing volume trading for both call & put options for MCD, stock of
MCD was found to be overpriced. This shows market expectations for the MCD‟s stock price to
fall in specific time.
Capital structure & bond rating
As of December 2008,
Long term debt Short term debt Total Equity
2,538,000,000 13,382,000,000
10,186,000,000
Total debt= 10,186,000,000 + 2,538,000,000 = 12,724,000,000
Debt in capital structure= 12,724,000,000/ (12,724,000,000+13,382,000,000) = 48.74% with
80% long term debt and 20% short term debt.
Rating agency Rating
Standard & Poor’s A
Moody’s Aa2
Fitch A
Bond yield Vs. Treasury yield
37
38. We have taken following bond into consideration:23
Current price 106.55
4.125%
Coupon rate
Dec 1, 2003
First payment date
June 1, 2013
Maturity
2.446%
YTM
24
MCD bond yield Vs. US Treasury yield 1
Stock Ratings
Analyst Rating
B – buy with target price $65.45
The Street
Positive- buy with fair value $64.70
ValuEngine
Positive B- buy with target price $60 in 6
Price target research
23
Yahoo! Finance
24
Corporate bond yield was taken from www.investinginbonds.com
38
39. months
Standard & Poor’s Strong Buy- with target price of $66 in 12
months
Shares are likely to be viewed as somewhat of a defensive play as the global economy slows, or
even contracts, in 2009. Furthermore, the $2.00 per share annual cash dividend is an additional
attraction to owning the shares. In summary, we view the shares as recession resistant, but not
recession immune.
Upper management team
Name Position acquired
Chairman
Andrew McKenna Sr.
Vice Chairman & CEO
James Skinner
President, COO & Director
Ralph Alvarez
CFO
Peter Benson
39
40. Vanguard Bond Index Fund Short (NYSE: VBISX)
Vanguard Short-Term Bond Index is ranked among 343 Fixed Income General Short funds by
S&P's three-year and overall rank of this fund. Funds are ranked on three year Sharpe Ratio.
The Fund seeks to track the performance of a broad, market-weighted bond index. Based on an
evaluation of certain characteristics of this fund, Standard & Poor's classifies Vanguard Short-
Term Bond Index as a Fixed Income General Short fund. Fixed Income General Short Funds seek
current income and preservation of capital. In pursuit of these objectives, the managers of such
funds invest primarily in investment-grade corporate bonds, U.S. Treasury securities or bonds
issued by U.S. government agencies.25
VBISX fund is from Vanguard family and it has been managed by Davis since January, 2005. It is
headquartered in Valley Forge, PA.
25
Standard & Poor‟s, VBISX Fund report
40
