Notes 4-2-08 (ch5,6 review CH7)

Notes 4-2-08 (ch5,6 review CH7) - Dividend Discount...

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4/2/2008 Early Bird for Monday 4/7/2008 CH 7 all of the self tests Except 7.8, 7.9 Notes CH 5 review Bonds Rates increase the price of the bond goes down Rates decrease the price of the bond goes up PV = (PVAFt,r% * pmt) + (1000 * PVt,r%) Bonds quoted in 32 nd Current Yield (CY) = pmt / P0 Total return = pmt + Change in bond price (% of capital appreciation/depreciation) Initial investment (P0) Change in Bond prices = P1 – P0 Or selling price – purchase price (initial investment) YTM = is the r for which PV of the bond = Price of all the bonds payment. Zero coupon bonds issued at a steep discount still matures to pay face of $1000.00 Rate of return – total return is only capital appreciation Convertible bond Have the option to change the bond to stocks. You get the stocks in fixed price Nominal Rate of Return Real Int Rate = Nom. Rate – Inflation Rate 1+real rate = 1+Nominal Rate / 1+Infaltion Rate CH6 review Stocks
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Unformatted text preview: Dividend Discount Model (DDM) Non-Constant Growth Zero Growth of Dividends EPS = net income / total # of shares-Payout -Plowback-Payout ratio + Plowback ratio = 1-G = ROE * Plowback ratio Constant Growth G – sustainable growth rate of Dividend Expected Returns Solving for R Non constant Growth Dividend Yield + Capital +/-Zero Growth of Dividends Dividend Yield Div0 = Div1 = Divt Constant Growth Find future expected Div. CH7 Net Present Value (NPV) Def – Present value of (a) cash flows minus the initial investments NPV = - initial investment + PV of cash flows NPV = PV of cash flows – initial investment C0 + C1/(1+r)^1 + C1/(1+r)^2 + C1/(1+r)^3 +…… Ct/(1+r)^t Opportunity Cost of Capital – Expected Rate of Return given up by investing in another projects R = opportunity cost (%) **********If NPV is greater than 0 you invest in the project********************...
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This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State.

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Notes 4-2-08 (ch5,6 review CH7) - Dividend Discount...

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