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Question Most Asked in 2010: Should I Buy Bank of America Stocks?

Earnings per share and Net Income Analysis (10-K)

Like any other bank, Bank of America experienced a decline in its Net Income in 2008. Reported Net income for 2007 for the bank was $14,928 million and in 2008 it was $4008 million. This is one of the biggest declines in the history of banking. In 2009 however, it seems like the bank’s position improved. Even though the Net Income did not go up to almost $15 billion or any where close to it like in 2007, it did increase from $4008 million to about $6276 million. A lot of the improvement can be attributed to acquiring Merrill Lynch and become the world’s largest wealth management company.

Earnings per share reported as of December 2009 were -$0.29 down from $0.54. In 2007 EPS reported were $3.29. Some Analysts at Wall Street still hold a Buy position on the stock while some claim it to be the worst stock of 2010.


There are mixed reviews and buy/sell recommendations for Bank of America Stock. Horacio Marquez, a contributing editor at Money Morning, back in 2008 recommended buying BAC stock but after the bank revealed some troubled assets, which were initially not released in the press, the stock saw a major decline. Since then the bank has seen significant improvements but the stock is still well under the recommended entry price.

Jim Woods, a financial journalist who has monitored the economy and stocks for two decades also recommends buying Bank of America Stocks. He mentions in his article “Five Reasons to Buy Bank of America Stock” that analysts favor BAC and that the bank’s conditions in all units is improving are among other reasons to purchase the stock.

On the contrary, Christopher Barker,  a Motley Fool contributor, says that Bank of America may be one of the worst stock of 2010 and states credit risk and Federal Reserve’s plan of acquiring $1.25 trillion of mortgage-backed securities as two of the many reasons for the recommendation.

My Take on the Subject

The US economy, or for that matter the global economy, will not be back to a 100% or as good as it was pre-recession right away as some might like to think. But, we have seen a little growth since last year. I have been reading articles and have been following the financial markets.

Even though the economic times aren’t at its best, I see potential, in particular Bank of America for this report. I would invest in Bank of America with the assumption that it is experiencing growth this quarter and is expected to grow more by the September quarter.

(I do not hold any interest in Bank of America and my recommendations are solely my conclusions and based on my research and therefore assume no responsibility for any damages or losses incurred by anyone who acts upon my advice.)


Life Settlements – Ethical or Not?

A recent article in the Wall Street Journal talks about how a lawyer in Rhode Island is advertising and giving out $2000 in cash to policy holders who are terminally ill. In return, he is asking to be the beneficiary on their life insurance policies.

There have been many arguments for and against the investment. Some believe that it is a viable investment and is ethical while there are people who argue the believers. For those of you who would like to know what a life settlements investment is in a nutshell, please see my earlier post by clicking here. (Please note that I am in no way arguing for or against the investment; it is something I researched on as part of my internship at Quantum Financial Advisors in Washington, DC.)

Joseph A. Caramadre, the lawyer mentioned in the article, is known in the state of Rhode Island for his philanthropic endeavors. According to his lawyer and the article, Caramadre has given out $2000 anyway to people who have refused his offer of taking over their life insurance policies.

Relatives of the insured in question have looked down upon and filed lawsuits against life settlements investors. Insurance companies have filed lawsuits against the legality of these investments (please see the article in WSJ for more) making the rules surrounding these investments stricter. But, it really comes down to individual perception on the ethical aspect of these investments.

What are your thoughts?


The opinions expressed by the Smith Student Bloggers are theirs alone and do not reflect the opinions of the Robert H. Smith School of Business or the University of Maryland or any employee thereof. The Smith School is not responsible for the accuracy of any of the information supplied by the Student Bloggers.

NYC Job Fair

New York City can be synonimized as the Mecca of Finance Careers. I went to New York City this morning for a Career Fair. NYC was charming and motivating as ever, the job fair wasn’t.

After travelling for four hours on the bus and waiting in the line for two hours ( yes a line at a Job Fair, my first) I found out that half the companies listed on didn’t even show up and the other half were recruiting beauticians and outdoor sales people. I respect people for their passions and whatever job they’re in but the aforementioned jobs are not my forte.

I still wasn’t disappointed (primarily because I still got be in New York) because I had an intuition, all the travels and pains I’m going through now will count as my efforts toward securing my career in the field of Finance especially NYC.

As cliche as it sounds I have come to a realization that I really want to live in NYC. I’m just a big city type of personality and I’m feeling the Big Apple.

Some say it’s not the right time to get into Finance or move to NYC. Here’s how I look at it – once I score a job in NYC and in the field of Finance, I will be part of a special group of people who were there and in some way helped bring the economy back out from the recession. This could and would pay off in monetary terms. More than financial achievement this would mean a personal achievement for me as I believe I can definitely bring something different to the table with my leadership qualities and passion for finance. I look at at it as glass half full.

Right now I’m on the bus, going back from New York, typing on my iPhone and committing myself to making it big in New York and everywhere in the world, and in my own eyes for personal pride.

Wish me luck in my future endeavors!

My 2010 Predictions

Happy New Year’s Eve to everybody!

There have been many forecasts made about the year 2010 such as Russian academic Igor Paranin predicting the end of United States or Global economy getting worse.

I thought of ending this year with a few of my own predictions:

  • I completely disagree with Igor Paranin. Yes, the United States has not been performing as it has in the past but it takes more than just a recession to disintegrate such a powerful nation
  • The US economy would not see much growth in the first quarter but come second quarter there would be slow but steady growth
  • Economic growth of about 4% (Global Economy) with China being the major contender (Given) at about 9-10%
  • Stock market seeing a constant upward movement
  • Rise in the number of small businesses
  • Credit would still be hard to come by. I believe that getting credit would not be easier anyway. Although not impossible to get but with recent sub-prime transactions (main reason why America is where it is right now) it would continue being hard to get credit
  • And last but the most important one for me is the job market. Being a recent college graduate I know how tough it is out there. I believe there would be a positive trend in the job market. More jobs would be available for more people.

Let’s see how accurate I am. Only time will tell.

Happy New Year to everyone and their families!  May the new year bring prosperity to all 🙂

Capital Budgeting

Let’s discuss the capital budgeting process from the Corporate Finance section of the CFA exam.

The capital budgeting process is the process of identifying and evaluating projects that bring in cash flow to a firm over a long period of time such as over a year.

The four main steps include:

1. Idea Generation: This comprises of brainstorming of profit generating ideas. It can be carried out by employees, senior management and can also come from outside the organization.

2. Analyzing Project Proposals: A cash flow forecast must be made to analyze all project ideas to further determine which one is the most profitable one for the firm.

3. Create the firm-wide capital budget:Firms must prioritize projects in relation to the timeline of cash flows, resources and the strategic plan. A project idea may make complete sense individually but may not be in line with the strategic plan of the firm which would make the project not a high priority.

4. Monitoring decisions and conducting a post-audit: In this stage the actual results are compared to the forecasted results. This helps in identifying key issues and making better future judgments.

Time Value of Money and Discounted Cash Flow Concepts

Ok, so I am personally using the TI Business Analyst II plus for the exam and will be using calculation methods for that particular calculator. The other permissible calculator at the exam is the HP 12 C. I personally do not use that calculator but those that are interested in using it can find a user’s guide online.

Now, let’s take a look at some of the important concepts regarding TVM:

Here are some of the important functions on the calculator that we would be using:

  1. N= No. of compounding periods
  2. I/Y= Interest rate per compounding period
  3. PV= Present Value
  4. FV= Future Value
  5. PMT = Annuity Payments or constant periodic cash flow
  6. CPT = Compute

Effective Annual Rate or EAR: [(1+periodic rate)^m] – 1 where periodic rate = Stated rate/m, m= no. of compounding periods

Semiannual: m = 2, Quarterly: m =4, Monthly: m=12 and daily : m=365

To solve present value, future value and annuity problems – it’s mostly plugging in available data into the calculator and computing for the required variable.

(Note: for annuity due problems make sure the calculator is in begin mode or perform calculation in end mode and multiply the answer by (1+ interest rate), to get the calculator into begin mode – 2ND [Begin] 2ND [SET] 2ND [QUIT])

Present Value of  a Perpetuity = PMT/ Interest rate

Compounding the FV and PV of uneven cash flows:


  • Calculate individual present or future value given in the problem
  • Add them all

When compounding periods are other than annual:

  • Multiple the periods by the number of compounding periods
  • Divide the Interest rate by the number of compounding periods

Compounding period reference table;

  • Annual: 1
  • Semi-annual:2
  • Quarterly:3
  • Monthly:12
  • Daily:365

Discounted Cash Flow Concepts

Computing NPV with the Business Analyst II Plus:

  • Press Cash Flow (CF)
  • Hit 2ND and Clear Work (CE/C) to clear history
  • for CFo enter initial cash outlay (usually negative since it is an outflow so press the +/- button to enter negative value)
  • Hit Enter and press the down arrow twice
  • Then enter a value for CF1 and hit the down arrow key twice unless the same amount is required to be entered and you can enter the frequency for it.
  • After entering all values, press NPV enter the discount rate, hit enter, press the down arrow key and hit CPT

Computing IRR

  • Press Cash Flow (CF)
  • Hit 2ND and Clear Work (CE/C) to clear history
  • for CFo enter initial cash outlay (usually negative since it is an outflow so press the +/- button to enter negative value)
  • Hit Enter and press the down arrow twice
  • Then enter a value for CF1 and hit the down arrow key twice unless the same amount is required to be entered and you can enter the frequency for it.
  • After entering all values, hit IRR and then CPT

Some other NPV and IRR related concepts:

  • Accept Projects with positive NPV
  • For mutually exclusive projects, accept project with higher NPV
  • Accept Projects with IRR greater than the required rate of return
  • When IRR and NPV conflict in the decision making process, choose NPV

Bank Discount Yield: (D/F)x(360/t)

  • D= Face Value – Purchase Price
  • F = Face Value
  • t = number of days till maturity
  • 360= bank convention of number of days in a year

Holding Period Yield (HPY):

(P1-P0+D1)/(P0) = [(P1+D1)/P0] – 1

  • P0 = Initial price
  • P1= Price received at maturity
  • D1= Interest payment

Effective Annual Yield: [(1+HPY)^(365/t)] – 1

Money Market Yield: (360/t) x HPY or [(360 x Bank Yield)/(360-(t x Bank Yield)]

Bond Equivalent Yield – 2 x semi annual discount rate

  • Convert the yield into effective semiannual discount rate and then double it

Hope some of the summaries above help revising concepts. Leave comments.