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Unformatted text preview: Current Income: cash or near-cash that is periodically recd. Simple I nterest: paid only on initial deposit for time held. Compound Interest: paid on initial deposit and any interest accrued from one pd to next. Continuous Compounding: interest is compounded over the smallest possible interval of time. Reqd Return = risk-free rate+risk prem. Risk-F ree Rate = real rate of return+exp inflation prem. HP R = (current income+cap gain)/beg investment value; Cap Gain = end investment value-beg investment value. Growth Rates : find growth rates on calc: enter beg value-PV, end value-FV, # of pds-N, CPT-i/y. Risk : uncertainty of: Business: an investments earnings/ability to pay returns. Financial: payments bc of capital structure (more debt, greater the risk). Purch Pwr: inflation/deflation affecting returns. Int Rate: changes in int rates will affect returns. Liquidity: inability to liquidate investment easily/at reasonable price. Tax: unfavorable changes in laws can affect returns. Market: decline in returns because of mkt factors. Event: unexpected events affecting returns. Standard Deviation = (return j-exp retu rn)/n-1. Coefficient of Variation = st dev/exp return. Efficient Portfolio : provides the highest return for a given level of risk. Portfolio Return : (w1*r1)+(w2*r2)+..+(wn*rn). Portfolio St Dev : (k 1-kavg)+(k2-kavg)+..+(kn-k avg). Pos Correlation: 2 series that move in the same direction ( Perfectly Pos Correl-2 series that have a correlation coefficient of +1). Neg Correlation: 2 series that move in opposite direction ( Perfectly Neg Correl-2 series that have a correl coefficient of -1). Total Risk = Non-Diversifiable Risk + Diversifiable Risk. Beta : measure of non-diversifiable risk ( beta should be bt .5-1.75, if b=.5 the return is half as responsive as the mkt ). CAPM : Reqd Rate of Return = risk-free rate+[ b *(mkt return-risk-free rate)]. SML: graph of CAPM model (beta-x axis). APT: mkt risk prem explained by a # of factors some cases replaces mkt return used in CAPM. T raditional Port Mgmt: balancing portfolio across range of industries. Modern Port Theory : uses several statistics methods: exp returns & st dev : emphasizes the efficient frontier & betas. Port Beta = (w1*b1)+(w2*b2)+..+(wn*bn). Risk Return T radeoff : positive relationship bt the risk of an asset and its exp return. Public Offering: offer to sell a set # of shares of stock to the public for a set price. Rights Offering: offer of a new issue to existing stockholders to purchase new shares in proportion to their current position. Stock Spin-Off: conversion of a firms subsidiaries to a stand-alone firm by distributing stock of new firm to existing shareholders. Earnings per Share : EPS = (Net Profit After Taxes Preferred Dividends) / Number of Shares of Common Outstanding Dividend Yield : DY = Annual Dividends Recd per Share / Current Market Price of Stock. Dividend Payout Ratio : DPR = Dividends per Share / Earnings per Share. DPR = Dividends per Share / Earnings per Share....
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This note was uploaded on 12/07/2009 for the course FIRE 314 taught by Professor Upton during the Spring '09 term at VCU.
- Spring '09