{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture Notes 1

# Lecture Notes 1 - Corporate Finance II Lecture Cost of...

This preview shows pages 1–10. Sign up to view the full content.

8/25/10 Corporate Finance II Lecture : Cost of Capital: Risk vs. Return

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
8/25/10 Part I: Review of the FINC2001 Material Review of Previous Unit Part I: Review of the FINC2011 Material 1 Summary of the FINC2011 Material Topics
8/25/10 Previous Unit Topics FINC2011’s topics. Financial mathematics. Ø Future value, present value, compounding interest Ø Annuities, perpetuities Capital Asset Pricing Model (CAPM). Ø Capital Market Line (CML) Ø Security Market Line (SML) Ø Systematic risk, Beta, diversifiable risk Capital budgeting, company cost of capital Market efficiency

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
8/25/10 Part II Today: Cost of Capital: Risk vs. Return
8/25/10 Lecture Summary: Outline of Today’s Lecture 1 Introduction 2 The Problem 3 Measuring Returns : Arithmetic & Geometric Average 4 Measuring Risk : Variance (Standard Deviation) 5 A Recap of Variance and Covariance 6 How Securities Affect Portfolios 7 Risk and Return in Portfolios 8 The Relationship Between Risk and Return A CAPM Example

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
8/25/10 n We have securities that entitle you to future cashflows: Ø What is the value of these securities? n Companies “issue” or sell securities Ø Company value is the value of the securities it has issued n Individuals “acquire” or buy securities Ø Individual wealth is the value of the securities they have bought/ invested in
8/25/10 The Problem The above is a generalization . . . Ø Companies and individuals can buy and sell securities Note For ALL securities. Price =PV [Expected future cashflows], = E[ futurecashflows ] discount factor Different models (usually some equation(s)) make different assumptions about: 1 The future cashflows, e.g. magnitude and timing 2 The probability associated with each future cashflow. 3 The present value calculation - the discount rate.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
8/25/10 The Problem Prices affect the values of companies and individuals. From prices we move easily to returns: r 1 = P 1 − P 0 P 0 P 1 = Price at time 1 P 0 = Price at time 0 Ø Say you own 100 shares worth \$10 each, then Wealth = \$1000
8/25/10 The Problem Returns can be: 1 Backward looking

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern