Continuation of LT Returns Discussion

Continuation of LT Returns Discussion - Continuation of LT...

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Unformatted text preview: Continuation of LT Returns Discussion FINA 4310 Spring 2010 Dr. Krause Why Study LT Investment Performance? Why do we care about LT stock, bond, and bill performance (average returns, std. deviations, Sharpe Ratios, etc)? Siegel Ibbotson Marsh, Dimson, and Staunton Homework assignments Why Study LT Investment Performance? Two reasons: 1. We need to appreciate what is normal for the capital markets. This helps us understand risk and return relationships and plan for the future. 2. We need to establish the appropriate discount rate in our valuation model Valuation Defined as the estimation of an assets value based on either: Variables perceived to be related to the present value of future investment returns (often referred to as discounted cash flow analysis ) or Comparisons with similar assets (often referred to as relative valuation ). Basic Discounted Cash Flow model An assets value is the present value of its (expected) future cash flows = + = 1 ) 1 ( t t t r CF V r...
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Continuation of LT Returns Discussion - Continuation of LT...

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