Questions:
In this exercise, it will require selection of 3 firms within each utilities sector or electricity industry analyzed to invest $10,000,000 of a special portfolio into both stocks and bonds evenly. The objective of the portfolio is to produce superior returns to those of the S&P 500 over the next 12 months. Therefore, given the economic environment, the sector sensitivity and performance expected, 3 firms will need to be selected per industry that will outperform their sector. Requirements In order to meet all the requirements for the financial analysis exercise #3, you are required to complete the following tasks:
• Select stocks and bonds to purchase based on sector and industry analysis
• Use 3 methods to calculate relative value of stocks: dividend discount, Gordon model and P/E or other approved method.
• Obtain the consensus earnings forecast for the firms
• Explain how this will affect the expected future price
• Obtain a consensus interest rate forecast
• How will this effect bond prices?
• How will this affect the roll down the yield curve?