2024 – Discussion 1 Risk and Return A Assume that you own a sizeable investment portfolio that

Discussion 1: Risk and Return

 

A. Assume that you own a sizeable investment portfolio that is invested exclusively in a broad-based stock market index fund.  Assume also that you contemplate adding a sizeable investment in the stock of the WALMART company.  What will happen to the overall riskiness of the portfolio, and why, with the addition of the new investment?  What specific indicators support your conclusion?  Should you make the additional investment – why or why not? 

 

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B. Using the WALMART company, value a share of the company’s stock using both the (1) constant growth dividend discount model, and (2) a discounted free cash flow model, and compare those values to the current trading price of a share of the stock?  Is the stock undervalued or overvalued?  Carefully explain the assumptions used in the valuations and the rationale for your response?

 

 An Excel-based Dividend Discount Model is provided if you want to use it (see attached file).

 

 You may use http://www.valuepro.net for the discounted free cash flow valuation model.)  Alternatively, you may use the Excel-based Discounted Cash Flow Valuation Model (file attached).

 

 Make sure that the presentations discuss the assumptions used in the valuations and present the results of the valuations with comparisons to the existing stock price.

 

 Note: See the information at ValuePro.net and for an Excel Dividend Discount Model template.

 

DDM Stock Valuation Models 012714.xls 

 

DFCF Valuation Model 0714.xls