Reference no: EM131966791

Project Instructions

The instructions are to include all the project exercises into a professional word document. For Part I please copy and paste all figures and tables from questions 1 through 7.

In addition, each group must include an interpretation below each figure and table. After providing all the tables and figures and at least two sentences interpreting graph include a summary conclusion of your opinion on the direction of the US economy.

Tip: Please do not define the graph but provide an interpretation. For example, suppose you include a graph of the yield curve. Do not define what the yield curve is by saying "it is a map of all the Treasury yields".

However, say something like this, "it is downward sloping which mean the market expects interest rates to decline in the next 12 months suggesting a large probability of an economic recession."

For Part II each group only has to include whether Goldman Sachs is over, under, or fairly valued for question 9. For question 10 just note if the put/call parity holds for Goldman Sachs. Include the equations with numbers used in the project report.

Part I

1. Calculate annual growth rate of commercial and industrial loans

• Google "commercial and industrial loans fed". Download monthly non-seasonally data. Use start date of January 1970. Download the data. Calculate the annual growth rate of the loans updating on a monthly basis.

Graph the year over year change updating on a monthly basis. Calculate the average growth rate from 1970 until today. Include the average on the graph along with the growth rate.

2. Find Household Debt Service Payments as a Percent of Disposable Personal Income

• Google "household debt service payments as a percent of disposable personal income and Fed".

• Click the St. Louis Fed link.

• Download data and graph.

• Calculate the annual percent change updating on a quarterly basis. Graph the change as well.

3. Calculate real growth rate of money supply

• Google M2 Fed. Click on first link. Click Monthly Non-Seasonally Adjusted. Download from 1970 to the most recent date. Calculate the annual growth of M2 stock updating on a monthly basis.

• Google CPI Index Fed. Click on first link. Click on Non-Seasonally Adjusted under Consumer Price Index for All Urban Consumers: All Items. Download from 1970 to the most recent date. Calculate the annual growth rate of CPI index updating on a monthly basis.

• Subtract the difference between the M2 and CPI growth rate to calculate the real growth rate in M2.

• Calculate the four year moving average of the real growth rate in M2.

• Plot the real growth in M2 and its moving average.

4. Calculate Fed's monetary base adjusting for excess reserves.

• Google Monetary Base Fed. Click on first link. Click Monthly Non-Seasonally Adjusted.
Download from 1984 to the most recent date.

• Google excess reserves Fed. Download from 1984 to the most recent date.

• Subtract the two and Graph.

5. Calculate Baa-Aaa spread.

• Google Baa Fed. Click first link and download data from 1970 to the most recent date.

• Do the same for Aaa Fed.

• Subtract the two and graph.

• Subtract the two and divide by the Aaa yield and graph.

6. Calculate yield curve

• Find the closing yields for all Treasury securities.

• Copy and paste the yields to Excel and graph the Treasury Yield Curve.

7. Calculate bid to cover ratio for 10 year Treasuries.

• Calculate the bid to cover ratio for 10-year Treasury auctions for every month of this year.

• Google bid to cover ratio treasury auction results. Select first Treasury direct link you find.

• Click Announcement and Press Release. Click Note and 10 year. Click pdf under competitive results for all years.

• Collect all data for this year and chart.

8. Write one paragraph that is a forecast of the US economy. What is the direction of the US economy in the next 12 months after netting the results from the previous seven questions?

What is the direction of interest rates and inflation?

Part II

9. Evaluate the stock price of Goldman Sachs using two techniques.

• DDM

• Relative Valuation

 Create a nice formatted table in Excel that shows all the steps/work. Copy and paste the table into your professional Word Document

1. To calculate g use two methods. 1. Use ROE x (1-payout ratio). 2. Go to yahoo finance enter GS. Click on the "Analysts" link. Use next 5 years growth estimate. To find the data go to yahoo finance.

Enter GS for the ticker. Click on statistics. Choose the go you think is the most appropriate to use. To calculate r use the CAPM, 10 year Treasury yield + beta * (7.6%). Use the forwarded annual dividend rate.

2. To use the relative valuation approach use google finance. Use the P/E, P/BV, and P/S ratios of the related companies.

3. Determine if GS over or under valued using both techniques.

10. Use put-call ratio.

• Determine if GS's put/call parity holds. Go to yahoo finance. Enter GS in ticker search box. Click on options. Find the date that is closes to one year from today.

• Find the call and put premium for a strike price that is close to GS's current price.

• Find the yield on a one year Treasury bill.

• Determine if the put/call parity holds using the equation.