S7.ppt - FINANCIAL MANAGEMENT 3-credit Core Course for...

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FINANCIAL MANAGEMENT 3-credit Core Course for MBA (IB) 2019-21 Day Time Dr. Niti Nandini Chatnani Associate Professor Indian Institute of Foreign Trade, New Delhi
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Recap of Session 6: 1.Pricing of any asset requires knowledge of (a)__________________, and (b)__________________________. 2.The greater the uncertainty about an asset’s future benefits, the _____________the discount rate to find their present values. 3.The contract between issuer and holder of bond is known as ____________________. 4.All else being the same, callable bonds will carry a _______________ (higher/lower) coupon rate as compared with puttable bonds. 5.For a given bond, if Coupon Rate > Required (Market) Rate, the bond will sell at ___________.
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6.If a bond is selling at a discount, then its coupon rate is _________ than the required rate of investors. 7.For bonds, as yields decline, the price increases at _____________rate; and as yields increase, the price declines at ______________ rate. 8.The ________________ shows how yield to maturity is related to term to maturity for bonds that are similar in all respects, excepting maturity.
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Valuation of Equities Background on Equity Valuation Fundamental and Technical Analysis DCF Methods of Equity Valuation Other Methods of Equity Valuation
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Background on Equity Valuation: - Fixed income securities like bonds typically have a fixed life, and a well-defined cash flow stream over their life - In the valuation of equities/stocks, cash flows are not known, and the factors of growth and risk create complexity; yet, the basic principles of valuation remain the same - Objectives of equity valuation are: (1) determine security characteristics; (2) identify mispriced securities - Equity analysts employ 1. Fundamental Analysis 2. Technical Analysis - A study of company fundamentals is helpful to develop a base for
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Approaches to Equity Analysis
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Methods of Equity Valuation for estimating Intrinsic Value: 1. Balance Sheet Valuation (a)Book Value Method (b) Liquidation Value Method (c) Replacement Cost Method 2. Discounted Cash Flow Valuation (a) Dividend Discount Model (b) Free Cash Flow to Firm Model (c) Free Cash Flow to Equity Model Relative Valuation (a) Price to Earnings Ratio (b) Price to Book Value Ratio (c) Price to Sales Ratio
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Book Value Method using BVPS: Provides a good measure of the value of a stockholder's residual claim at any given point in time. It is the accounting value of the company's assets less all claims senior to common equity (such as the company's liabilities), divided by the company's issued and outstanding common shares. Equity investors often compare book value to the market price of the stock in the form of the MV/BV ratio to attribute a measure of relative value to the shares.
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