Yield Curve of Wal-Mart Stores - Essay Example

The last traded price of the stock of Wal-Mart Stores Inc. is $53.19 on 29th August 2011. The price of the stock at the same point last year was $50.55. The price has shown an increase of 5.22% in the past year. During the year the stock has been at a high of $57.57 and a low of $48.41. If we compare the price movement of the stock with that of the S&P 500, NASDAQ, and Dow Jones Industrial Average, we see a positive correlation between the stock price and the three indices. The stock prices have moved with the market in the past year. But on the other hand, the stock price movements have been less vigorous than the three indices, which means that the stock is not as volatile as the market.

In absolute terms, the sales and profitability of the firm have increased in the past 3 years. The sales have grown at a rate of 2.15% in the past three years. The profitability of the firm has grown at a rate of 10.67% in the past three years. The profit margin has also seen an increase in the past three years. It was 3.31% in 2009, 3.52% in 2010, and 3.89% in 2011. The trailing profit margin is also following this trend with a margin of 3.87% for the quarter ending July 31, 2011.

According to upgrades and downgrades history, the stock was downgraded on February 10, 2011, to neutral from buy. But analysts after that have estimated a mean price target of $60.10, which is approximately $7 above the current price. Analysts’ estimates show that the sales will show growth at the end of this year and the next one. The analysts also expect that the EPS will also show growth. The analysts have estimated that Walmart will grow at 10.41% per annum over the next five years and the industry will grow at 14.82% per annum. The analysts recommend buying to hold on to the stock with a mean recommendation of 2.2.
Part 2
Complete the following table:
Business Date Chosen Five Years Ago 30/08/2006
1-month Nominal T-bill Rate on that Date 5.16
3-month Nominal T-bill Rate on that Date 5.05
6-month Nominal T-bill Rate on that Date 5.14
1-year Nominal T-bill Rate on that Date 5.06
5-year Nominal T-bill Rate on that Date 4.72
10-year Nominal T-bond Rate on that Date 4.76
20-year Nominal T-bond Rate on that Date 4.98
30-year Nominal T-bond Rate on that Date 4.91

1. The yield curve is almost inverted on this date. This is because the trend that can be inferred from the graph is that long-term debt instruments have a lower yield than short-term instruments. \
2.
10- Year Bond Purchased for $1000 5 Years Ago
Original Value $1000
Coupon Rate 4.79
Current 5-Year Yield to Maturity 0.98
Number of Semi-Annual Periods 10
Current 5-Year Yield to Maturity/2 0.49
Current Value $1,185.47
Gain or Loss on the Bond over the 5 years $185.47

20-Year Bond Purchased for $1000 5 Years Ago
Original Value $1000
Coupon Rate 5.00
Current 15-Year Yield to Maturity (est.) 2.70
Number of Semi-Annual Periods 30
Current 15-Year Yield to Maturity (est.)/2 1.35
Current Value $1,282.14
Gain or Loss on the Bond over the 5 years $282.14 Read More