Note1 - Beginning of the month - market goes up Bond...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Beginning of the month - market goes up Bond investment love when market goes down because of lower interest rate Make a lone got about 200-300 basis points Bond market: 2.5-3 times bigger than stock market Human element see different views Prof. Aswath Damodaran good website providing free stuff Before 50 years ago finance was applied economy Hedge fund short idea. If net profit is higher but cash flow is lower - net profit will finally comes down and meet with cash flow Growth makes sense when ROIC is higher. But if ROIC is lower no need to grow Buffet without soft skills, others (modeling, knowledge in finance) are nothing GDP (building inventory) change in inventory = real sales Frank Anderson thinks that real sales are better than GDP because it shows real stuff that has been sold. Non-operating asset/liability interest and stuff. Optimal capital structure - Add debt cost of equity also go up because investors concern that the company may be bankruptcy Large companies are usually overweigh debt because interest rate is low (if rate goes up, its good????) Acquisition cant use WACC must be expected rate of return for equity (because we have to pay off debt??? ) why have to pay off debt??? Bond refinance... WACC always after-tax Debt is cheaper and has tax benefit not dilute Earnings per share Underwrite???? Cost of Preferred stock Rps = D/ (Pps (1-F)) F is charged by Investment banker Risk free Rate is around 6% Beta 5 years on monthly basis. Geometric mean if the market went down 50% this year got to get up 100% next year.. Not just an average... Alpha = difference between Required Rate of Return and Realized Rate of Return?? We can calculate the alpha for this stock by subtracting the required return from the predicted return: i = predicted return required return = 12.7 11 = 1.7% Negative beta stock helps us to manage portfolio (mixes with positive beta) Effect from increasing interest to stock price Stock Price Effects Clearly, changes in the federal funds rate affect the behavior of consumers and business, but the stock market is also affected. Remember that one method of valuing a company is to take the sum of all the expected future cash flows from that company discounted back to the present. To arrive at a stock's price, take the sum of the future discounted cash flow and divide it by the number of shares available. This price fluctuates as a result of the different expectations that people have about the company at different times. Because of those differences, they are willing to buy or sell shares at different prices....
View Full Document

This note was uploaded on 07/30/2011 for the course FIN 7512 taught by Professor Anderson during the Summer '11 term at University of Texas at Dallas, Richardson.

Page1 / 36

Note1 - Beginning of the month - market goes up Bond...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online