Question

7. One of your first assignments as a financial analyst at Fidelity Investments is to value the stock of a company that has not paid any dividends. You know you can’t apply the dividend discount model, so you must turn to a different method of valuation. Luckily, you remember you can value a stock using the Price-Earnings or P-E ratio. Describe this method and explain how you would use it to value the stock.

7b. Compare bond markets to stock markets. Are there ways in which they are similar? How are they different?

Answer 1

7b answer Stocks and bonds are two of the most traded items—each available for sale on different platforms or through a variety of markets. Stocks are shares, known as equity, in a publicly-traded company. Bonds are basically a fixed-income loan the investor makes to a government or corporate entity.

Similar =Bonds are debts while stocks are stakes of ownership in a company. ... On the other hand,bonds often operate off of fixed interest rates that the entity buys from the investor, whichwill frequently pay out annual interest rates to investors while repaying the amount in full at a given time.

Differences =

One major difference between the bond and stock markets is that the stock market has central places or exchanges where stocks are bought and sold.

The other key difference between the stock and bond market is the risk involved in investing in each. When it comes to stocks, investors may be exposed to risks such as country or geopolitical risk (based on where a company does business or is based), currency risk, liquidity risk, or even interest rate risks, which can affect a company's debt, the cash it has on hand, and its bottom line.

Bonds, on the other hand, are more susceptible to risks such as inflation and interest rates. When interest rates rise, bond prices tend to fall. If interest rates are high and you need to sell your bond before it matures, you may end up getting less than the purchase price. If you buy a bond from a company that isn't financially sound, you're opening yourself up to credit risk. In a case like this, the bond issuer isn't able to make the interest payments, leaving itself open to default.