Module 3 Lecture 8 - Fall 2010 Module 3 Accounting Finance...

Info icon This preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
David Robinson © D. Robinson, 2010 Fall 2010 Module 3 Accounting & Finance Lecture 8: Stocks, Portfolios, Mutual Funds & ETFs
Image of page 1

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

View Full Document Right Arrow Icon
Accounting & Finance Accounting Finance Managerial Financial Auditing How investors use their money How firms raise money Three financial statements Forms of business Income St. Balance Sheet St. Cash Flows
Image of page 2
Lecture Outline Valuing Common Stocks The daily battle between greed and fear Long-run valuation of future cash flows Price/Earnings ratio handles different stock prices, different earnings Diversification Unique risk versus Market risk Portfolios
Image of page 3

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

View Full Document Right Arrow Icon
Common Stock (“shares”) A fraction of ownership in a company You can buy and sell at any time Company never expects to pay you back the original money Company _may_ give dividends (a small payment—part of the profits—typically once a year
Image of page 4
Common Stocks are Risky But, over long periods of time they give a better return than “fixed instruments” (i.e. bonds) Their rising prices reflect the growing economy
Image of page 5

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

View Full Document Right Arrow Icon
Why do People Invest in Common Stocks ?
Image of page 6
All investors want a “good return” Interest rates on Savings Accounts at Banks are very low—about 1 percent Wouldn’t even keep up with inflation Total return: Price + dividends
Image of page 7

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

View Full Document Right Arrow Icon
Market has climbed out of a big sell-off last year: Peak 14,000 Oct 2007 Low 1 early 2009, about 6,500
Image of page 8
Definition: “Bear Market” A severe moderate-term decline in share prices The drop in prices causes a loss of investor confidence Many shareholders sell, decreasing prices further
Image of page 9

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

View Full Document Right Arrow Icon
Over the long run, the market has returned 10.5 to 11 percent Total return: Price + dividends That beats “safe” bonds, say 4 to 5 percent Logarithmic scale
Image of page 10
Valuing Common Stocks Common stocks produce a variable return
Image of page 11

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

View Full Document Right Arrow Icon
Common Stock is even more risky than a corporate bond We hope to get a bigger return, But Dividends are not guaranteed If the company fails (goes bankrupt) we’ll likely get nothing at all [Bond holders (owners) are creditors of the firm and get paid in full before shareholders get what’s left.]
Image of page 12
Where do stock prices come from ?
Image of page 13

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

View Full Document Right Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    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.

    Student Picture

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

  • Left Quote Icon

    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.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    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.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern