090926_Valuation of financial assets

090926_Valuation of financial assets - Valuation of...

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Valuation of Financial Assets Lecture 4 26 September 2009
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Valuation of financial assets: steps z Understanding the taxonomy of financial instruments; z Understanding “no difference” idea when evaluating real and financial assets; z Specific techniques
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Taxonomy of financial assets The two major types of financial assets are: z Primary instruments contain a claim on some real asset z Derivatives contain a claim on some contract related to real assets
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Primary instruments Primary assets are sub-divided into z Currencies a right to purchase a certain amount of goods and services within a given territory z Securities a right on some part of property, owned by a legal or physical entity
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Securities z Debt securities (Bonds, bills, notes) a paper that promises to pay some periodic payments for a specified period of time; z Equity securities (Stocks/shares) a security that represents a share of ownership in legal entity, also a claim on a part of future cash flows z Hybrid securities
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Stocks Vs. Bonds z Stocks give a right to take part in decision- making process concerning the company’s actions, and to share all the benefits and risks of these decisions. z Debt securities are more certain (they offer fixed income), but their upside opportunities are limited as well. Debt owners do NOT normally make decisions about the firm.
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Financial assets valuation z Fundamentally, valuation techniques of real and financial assets could not differ at all: otherwise an investor would not be able to compare them.
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This note was uploaded on 10/12/2010 for the course BANKING AN 001 taught by Professor Bogdukevich during the Fall '10 term at London Business School.

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090926_Valuation of financial assets - Valuation of...

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