Using data from the Yahoo quote service (Links to an external site.) and the St. Louis Federal Reserve (Links to an external site.) evaluate the following companies: Merck (MRK), Oracle (ORCL) and a 10- year U.S. Treasury bond.

1. For each, calculate several relevant price earnings ratios. Be sure to identify which earnings number you used (e.g. ttm which is trailing 12 months, next 12 months, past quarter * 4, next quarter * 4). Which has the highest P/E ratio? What factors account for differences? How can a company have negative price/earnings ratio and a high stock price? Explain in a sentence or two.

2. Compare the actual stock price per share to the book value per share of each stock (use Yahoos profile option). Which stock has the greatest percent difference between these two values? Which stock has the smallest percent difference between price per share and book value per share? Why do you think these two firms have the largest and smallest percent differences? Estimate the value of intangibles per share.

3. Calculate the present value of earnings per share for each stock. Be sure to use an opportunity cost that reflects the risk associated with each company (provide some justification for your opportunity cost even it is shallow or mis-informed). Assume each firm has a life of 20 years. Now assume a life of 30 years. Perpetual life?

4. Suppose that the Federal Reserve raises the risk free interest rate by 1%, how will this affect the value of the firm? What is the percent change in the value (stock price) of each?

5. Suppose the US Treasury sells a $1,000 bond today maturing 10 years from today with a stated interest rate of 2.5%. How much would you be willing to pay for this bond today (check the St. Louis Fed site for current interest rates). Now suppose that as predicted by some analysts that the 10-year Treasury rate increases to 2.0% by the end of 2019, how much would your bond be worth. What if the rate drops to 1.4%, due to a hard Brexit how much would your bond be worth? (Two reason these rates would change is due to changes in the expected rate of inflation and changes in risk).