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EXAM#2 Study Guide

# EXAM#2 Study Guide - 18 β i = r S ^ r M ^-how...

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BMGT 340 EXAM #2 Study Guide A. Interest Rates 1. L-T Cooperation : r = r* + IP + DRP + LP + MRP = r RF + DRP + LP + MRP 2. L-T T-bill : r = r* + IP + MRP = r RF + MRP 3. S-T T-bill : r = r RF = r* + IP 4. IP AVG = (I 1 + I 2 + … + I N ) / N B. Bond –IN/RATE, SIMI BACK TO ANNUAL x2!!! 5. Coupon rate = annual PMT/face value 6. Current yield (CY) = Annual interest / current price = YTM - CGY 7. Capital gains yield (CGY) = Annual price / price 0 = YTM - CGY 8. Expect ∑return = Yield to maturity (YTM) = CY + CGY 9. Constant market rate, Coupon rate ↑. PV↑ 10. Constant coupon rate, market rate↑, PV↓ C. Stock 11. Real return % = (receive – invest) / invest; Annual return: I/Y 12. Expected return % = P 1 r s1 + P 2 r s2 + … + P i r si 13. Coefficient of variance (CV) = stand-along risk / expect return% (r s ^ ) --risk/unit of return 14. Market’s Risk premium (MP) = r M – r RF i = 1) 15. Stock i ’s Risk premium (RP M ) = (RP M ) x β i = (r M – r RF ) x β i 16. SML (Min required r) : r s = r RF + (RP M ) x β i = r RF + (r M – r RF ) x β i 17. Inflation↑, SML↑ (interception); risk adverse↑. r M & MP↑ (slope)
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Unformatted text preview: 18. β i = r S ^ / r M ^ --how risky/profitable 19. β AVG = (Invest 1 / ∑invest) x β 1 + (Invest 2 / ∑invest) x β 2 20. CAPM : Relationship between risk and return%; β: key D. Valuation of stock = ∑Deviation 21. Single yr: P ^ = (Div 1 + P 1 ) / (1 + r s ) 22. Constant g : P ^ = Div 0 (1+g) / (r s – g) = Div 1 / (r s – g); P N ^ = Div N+1 / (r s – g) = P 0 (1 + g) N 23. g = 0 : P ^ = Div / r s 24. Changing to constant g : P ^ = (Div 1 ) / (1+ r s ) + (Div 2 ) / (1+ r s ) 2 … + (Div N + P N ) / (1+ r s ) N 25. Capitalization % = Discount % = Expected ∑return % = cost of equity capital = opportunity cost : r s ^ = Div. yield + Capital gains yield = Div 1 / P 0 + g 26. Div. yield = Div 1 / P 27. Capital gains yield = Div. & Price↑%: g = (Div 1 – Div ) / Div = (P 1 – P ) / P 28. Stock balance : P 0 = P ^ & r s = r s ^ : r RF + (r M – r RF ) x β i = Div 1 / P 0 + g...
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