In this assignment, you will choose a company of interest (FORD MOTOR CO) and evaluate its stock’s fundamental value. You will practice how to 1) Use the beta of the stock, market return, and risk-free rate to calculate the required rate of return, 2) evaluate the stock using constant growth dividend discount model. Assignments should be submitted in the format of excel files.
Data: 1) the company’s dividend history from finance.yahoo.com or the company’s own website.
2) the company’s market risk exposure measured by “Beta (5Y Monthly)” from the company’s summary page on finance.yahoo.com
3) choose an estimation period for the required return R, at least going back a 5-year period.
4) risk-free rates (annual rates) for the estimation period; the rates are available monthly at https://fred.stlouisfed.org/series/TB3MS
5) monthly market index (use S&P 500) “Adj Close” prices for the estimation period https://finance.yahoo.com/quote/%5EGSPC/history?p=%5EGSPC
Part I. calculate required return R
1) Calculate risk-free rate using average of the annual 3-Month Treasury Bill interest rates over the estimation period.
2) Calculate the monthly market return = (Adj close at the end of month – Adj close at the end of pervious month)/Adj close at the end of previous month
3) Calculate annualized market return = average monthly return * 12
4) Use the formula to calculate required return R = risk-free rate + beta*(annualized market return – risk-free rate).
1) Estimate the growth rate of dividends from dividend history data. There is no specific formula for estimating g using historical data. You can use the most recent growth rate, the average growth rate for the past 5-years, or your own model.
2) Use the Constant Growth Model in the (a case of the Dividend Discount Models): Intrinsic Value = D0(1+g)/(R-g)
where D0 is the current annual dividend, and R is the required return we estimated in part I.
Compare your calculation of intrinsic value to the market price, what are your observations and conclusions?
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Following the recent
ruling that pre-exposure prophylaxis (PrEP) can be prescribed for the
prevention of HIV within the National Health Service, what potential impact
might this have for individuals, health care and society?
prophylaxis (PrEP) is medication taken by individuals without a diagnosis of
HIV, in order to reduce the risk of contracting the virus (Spinner et al.,
2016). The regimen of PrEP is typically composed of antiretrovirals in a
combined pill, typically tenofovir disoproxil fumarate and emtricitabine
(Brydon, 2018). In HIV-infected individuals, these antiretrovirals serve to
treat the infection, reducing the viral load of the patient; lifelong therapy
is needed with antiretrovirals to prevent clinical disease (i.e. AIDS) (Kelen
and Cresswell, 2017). In HIV-negative individuals the purpose of PrEP is not to
prevent viral transmission or entry into the body, but to reduce viral
replication to a level whereby the immune system can eradicate infected cells,
preventing established HIV infection (Brydon, 2018).
The evidence base
supporting the use of PrEP is substantial, indicating a reduction in HIV
transmission, particularly in men who have sex with men (MSM), a key target
population (e.g. Volk et al., 2015; LeVasseur et al., 2018). Therefore, PrEP
can be considered an effective preventative approach, along with other
strategies to prevent HIV infection, such as condom use (barriers methods) and
male circumcision (Dolling et al., 2014). This has led to the approval of PrEP
for the prevention of HIV within the National Health Service (NHS) within the
last year, building on the availability of PrEP in Scotland (Nandwani, 2017).
The remainder of this paper will consider the potential impact of this approval
process, focusing on individual, health care, and societal outcomes.
The changes in availability and use of PrEP can have massive
effects on the individual. Firstly, NHS funding of PrEP can increase access to
the drugs and affordability of these drugs (Nichols and Meyer-Rath, 2017). PrEP
was only available through third parties and pharmacies from other nations,
increasing the cost of this preventative strategy and the risk of unreliable
sourcing from online companies (Brydon, 2018). Affordability and access are
particularly important in vulnerable groups and socioeconomically disadvantaged
members of the population, who may be at a higher risk of HIV infection
(Spinner et al., 2016).
One of the main individual benefits of the availability of PrEP
is the expansion of options available for those who are at-risk of HIV. Current
preventative strategies can have significant limitations, which limit their
practical application (Frankis et al., 2016). For instance, condom use requires
access to condoms and positive attitudes to their use, which are not always
present due to perceptions of diminished sexual pleasure (Dolling et all.,
2014). In these individuals, PrEP can provide an alternative to condom use and
ultimately empowers individuals to manage health risk (Frankis et al., 2016).
Other factors that interfere with traditional HIV prevention
practices, including religious beliefs, cultural factors and personal attitudes
to condom use, may lead to an acceptance of PrEP, increasing the power of the
individual to prevent HIV transmission (Stewart, 2016). Providing increased
opportunities and options for individuals to prevent HIV transmission is vital
in promoting heathier sexual behaviours, while increasing individual autonomy
and self-efficacy (Harawa et al., 2017). Therefore, the impact of PrEP approval
within the NHS may benefit those at greatest risk, while broadening access and
availability of preventative measures.
It is important to note that PrEP use does not protect against
sexually transmitted infections (STIs) and that the role of condoms in
preventing both HIV and STIs remains important and should be communicated to
individuals interested in PrEP (Storholm et al., 2017). Furthermore, individual
benefits are only possible if adherence to PrEP is likely to be optimal;
non-adherence reduces the effectiveness of the drug combination and can
increase risk of HIV transmission (Storholm et al., 2017). Therefore, selection
of the target population and individual education on PrEP use will be essential
in ensuring benefits. At present, 10,000 people are enrolled onto the PrEP
IMPACT evaluation in England and the results of this trial will provide
valuable insights into the individual benefits of the use of PrEP (NHS England,
From a health care perspective, the funding of PrEP by the NHS
can be considered beneficial in a number of ways. Principally, PrEP has been
shown to have a significant impact on HIV transmission rates in trials and ‘real-world’
evaluations, which may translate into a reduced HIV burden in the population
(Fonner et al., 2016; McCormack et al., 2016; Sagaon-Teyssier et al., 2016).
HIV infection is still associated with significant morbidity and mortality in
the population and therefore prevention can have significant benefits in how
health services manage population health (Hankins et al., 2015).
Furthermore, one of the most important impacts of PrEP use in
MSM from a health service perspective is the potential for cost savings in the
short and/or long term due to reduced rates of HIV infection. A
cost-effectiveness and modelling analysis has shown that PrEP in MSM is
associated with cost savings, based on an initial rollout of 4000 men within
the first year (Cambiano et al., 2018). Similar analyses have been performed
and are associated with cost savings with PrEP use, depending on the length of
time the projections are designed, the use of condoms within the target
population, the rate of STIs in the target population and the cost of
antiretroviral drugs (Drabo et al., 2016; Cambiano et al., 2018; Fu et al.,
Possible negative effects of PrEP have been considered in the
literature, with a predominant focus on an anticipated decline in condom use,
rise in STIs and the costs associated with these conditions (Kelen and
Cresswell, 2017). Although the relationship between condom use and PrEP use is
complex, there is no clear evidence that PrEP reduces condom use during sex,
although up to 30% of HIV-negative men with HIV-positive partners suggested
that they may be less likely to use condoms if PrEP were available in one study
(Hoff et al., 2015). However, in the context of committed couples, this may not
translate to an increased risk of STIs, although the risk of HIV transmission
needs to be considered in individuals who are less likely to use condoms (Hoff
et al., 2015). Furthermore, the IPERGAY (Intervention Préventive de
l’Exposition aux Risques avec et pour les Gays) study found equal rates of STIs
in patients using PrEP and those not using PrEP to prevent HIV transmission,
suggesting that risk-taking may not be associated with PrEP use
(Sagayon-Teyssier et al., 2016).
The cost-effectiveness of PrEP use in the NHS will partly depend
on the potential for an increase in condomless sex and STIs, suggesting that
this possibility should be closely monitored to ensure cost savings and
population health (Cambiano et al., 2018). More data will be needed to assess
the health care impact of PrEP use, particularly as the target population
becomes more clearly defined and expansion of PrEP use in England occurs (NHS
Finally, on a societal level, there is an important need to
consider the wider ethical, social and cultural aspects of PrEP use and the
impact of PrEP. Indeed, views on HIV and HIV management are often highly
polarized in society and within the British media (Jaspal and Nerlich, 2017).
HIV is associated with a significant level of stigma and any strategies used to
combat infection rates and to reduce the risks of relationships between
HIV-negative and HIV-positive individuals may serve to reduce stigma to some
extent (Grace et al., 2018). The psychological toll of stigma should not be
underestimated and strategies that alleviate stigma can have significant
benefits for quality of life and wellbeing (Grace et al., 2018).
However, part of the polarized perception of HIV management in
society associates negative connotations with the use of PrEP. An argument
against PrEP use for the prevention of HIV in the general population is the
perception that the medication could be seen as an invitation to promiscuity or
condomless sex, with negative moral and health implications (Knight et al.,
2016; Brydon, 2018). Similar arguments are generally proposed for all advances
in sexual health services (e.g. oral contraception) but are not generally
supported by the research evidence (Calabrese et al., 2016).
Therefore, it is important to ensure that public awareness and
education of the role of PrEP and the massive potential benefits of the
approach are not obscured by misinformation or unfounded claims in the media
(Jaspal and Nerlich, 2017). Health care professionals are well-placed to inform
the public and address such sources of misinformation but need to be supported
by policy makers and national guidance (Calabrese et al., 2016; Desai et al.,
2016). However, wider societal attitudes and stigma associated with HIV needs
to be challenged through policy and law-making to ensure individuals at-risk of
HIV have access to PrEP (Serrant, 2016).
In summary, the use of PrEP for the prevention of HIV infections
in the UK is supported by the evidence base and has become an important aspect
of NHS-funded interventions for those at-risk of HIV infection. The potential
impact of PrEP can be seen on an individual, health care and society level,
with reductions in HIV infections, cost savings, and improved availability and
access to health services. The implementation of PrEP needs to be closely
monitored to ensure public awareness and education is facilitated to prevent
negative health behaviors and risks.