INVESTMENTS, INTEREST RATES, AND RISK 1 Investments, Interest Rates, and Risk: In Principles of Finance Jazmin Filer Rasmussen College Author Note This research paper is being submitted on August 17, 2014, for Jim Boxma's B230/FIN1000 Section 02 Principle of Finance Course. INVESTMENTS, INTEREST RATES, AND RISK 2 Which of the five investments do you think are most highly affected by the level of interest rates in the economy? Why? It is seen that shares values of APPLE Inco has seen as an upward movement during the last few days, because its shares bargaining in market is higher than other companies and it is attracting many investors around the globe to invest in its shares. Because of the stable economic conditions in USA market, the stock price of Apple Inco has been viewed as a reliable investment and traders are trading mostly in that stock. If we look at the various factors that tend to increase the level of interest on the stock values, these are said to be the demands of shares in market which highly appeals to investors to buy more shares of Apple Inco. The reason for increasing the interest rate on the share is the more stable economic condition and strong reliance of investors in the market. When the demand for shares in the market is higher, then interest rate also increase as investors usually want huge and satisfactory return on their investment. Second reason for increasing the interest rate is the higher monopoly of companies in the market. As Apple Inco is highly penetrated company in the cellular product, people and consumers strongly believe that purchasing products of Apple Inco would give them more benefits, so keeping the views of the consumers, with every passing day, Apple Inco tends to increase the interest rate on the share which provides higher profit and return on investment to its shareholders and investors. Third reason is that during the recession period, monopolistic companies prefer to facilitate its consumers by giving the numerous options which help companies its increase their clienteles and after gaining huge consumers response. Companies increase the interest rate for giving more return on their investment on daily basis. This option is undertaken on e condition when investors believe that their current investment will yield more positive outcome and return. Order of investment from most risky to least Risky: INVESTMENTS, INTEREST RATES, AND RISK • Nasdaq Apple • NYSE-WMT • ALL • AAMRQ • AAMRQ 3 These investment order has been done on the basis of the consumer’s response and the overall return taken by consumers on the investment. The highest risky investments is in the purchase of the share of Apple Inco , though people highly believe in Apple Inco but some uncertain events can reduce the values of shares of Apple Inco down. The least risky is AAMRQ which gives no adequate profit and loss to investors then investors see very highly investment in AAMRQ as it gives equal loss and profit to it investors. What types of risk do you think affects each of the investments? The risk on each investment can vary but it is the market response to each investment. Thus overall, the uncertain economic conditions and low income of people can be a huge risk for each investment which can lower the values of investment in the market. Thus interest rates also vary depending the marketing condition as well. Company Selection and Stock Watch No. 1 2 3 4 5 Date Stock Name Stock Symbol Current Price Exchange Traded On Financial Facts Financial Analysis of Apple and Wal-Mart Liquidity Ratios Liquidity Ratios Current Ratio Apple Quick Ratios 1.68 1.64 0.88 0.24 WalMart From the above table we can see that Apple Incorporation is financially very strong and a much better financial position than the Wal-Mart Stores Inc. and the company is safer for investment as there are less chances of the company being defaulted or insolvent as the company has the back up or finances to pay its debts. Activity Ratios Activity Ratios Inventory Receivables Days Sales Fixed Asset Total Asset Turnover Turnover Outstanding Turnover Turnover 62 11.8 2.12 1.3 0.8 194 7.84 1.88 3.65 2.56 As we can see from the above table of calculated ratios, the Apple Incorporation is performing much better than the Wal-Mart as all the above ratios of the Apple Inc. are much better than those of Wal-Mart. Profitability Ratios Profitability Ratios Gross Profit Operating Profit Net Profit Return on Return on Margin Margin Margin Assets Equity Apple 38% 29% 22% 32% 30% 24.8% 5.6% 3.3% 7.8% 20.8% WalMart The profitability of the Apple Inc. is also much better than that of Wal-Mat as we can see all the respective ratios of the of the Apple Inc. are better than those of Wal-Mart. So this implies that the Apple Inc. has better profitability. The net profit margin of Apple Inc. is 22% which is much higher than Wal-Mart which is 3.3%. Leverage Ratios Leverage Ratios Debt Ratio Apple 102.5 WalMart 75.5 As we can see from the above table the leverage ratios of the Apple Inc. is higher than that of Wal-Mart Inc. which indicates that the Apple is applying its financial leverage to a good effect and is doing better than Wal-Mart Coverage Ratios Coverage Ratios Times-InterestEarned 614.58 11.62 Conclusions: From the above analysis we can conclude that the Apple Inc. has much better position than that of the Wal-Mart as it is performing much better in all areas and all the financial ratios of the Apple Inc. are better. So we will recommend that the investment in the stock of the Apple Inc. is better than Wal-Mart. References: 1. Wagner, Wieland (May 28, 2010). "iPad Factory in the Firing Line: Worker Suicides Have Electronics Maker Uneasy in China". Der Spiegel. Retrieved August 27, 2014 2. Buchanan, Matt (March 5, 2010). "Official: iPad Launching Here April 3, Pre-Orders March 12". Gizmodo. Gawker Media. Retrieved March 4, 2010. 3. "iPad Available in US on April 3" (Press release). Apple. March 5, 2010. Retrieved August 27, 2014. 4. "iPad Wi-Fi + 3G Models Available in US on April 30" (Press release). Apple. April 20, 2010. Retrieved August 27, 2014 5. Mark Rogowsky (June 2, 2014). "WWDC 2014: Live! News And Much More From Apple's Keynote". Forbes. Retrieved June 3, 2014. 6. "iPad – Technical specifications and accessories for iPad". Apple Inc. January 27, 2010. Retrieved August 27, 2014 Currnet Ratio Apple Wal-Mart Liquidity Ratios Quick Ratios 1.68 0.88 Inventory Turnover 1.64 0.24 62 194 Profitability Ratios Gross Profit Margin Operating Profit Margin Net Profit Margin Apple 38% 29% 22% Wal-Mart 24.8% 5.6% 3.3% Leverage Ratios Coverage Ratios Debt Ratio Times-Interest-Earned Apple 102.5 614.58 11.62 Wal-Mart 75.5 Activity Ratios Receivables Turnover Days Sales Outstanding Fixed Asset Turnover Total Asset Turnover 11.8 2.12 1.3 0.8 7.84 1.88 3.65 2.56 ty Ratios Return on Assets Return on Equity 32% 7.8% 30% 20.8%