Topic 5 - BMGT 343: Investments Prof. Anna Obizhaeva...

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

View Full Document Right Arrow Icon
1 BMGT 343: Investments Prof. Anna Obizhaeva Office: VMH 4428 Phone: (301) 405-7934 Email: obizhaeva@rhsmith.umd.edu Equities © Anna A. Obizhaeva Section 0101 T Th 9:30-10:45 am in VMH 1307 Section 0201 T Th 11:00-12:15 pm in VMH 1307 Section 0301 T Th 12:30-1:45 pm in VMH 1307 Office Hours : Wed 10:00-11:00 am or by appointment Equities Topic 5: Risk and Return Equities © Anna A. Obizhaeva
Background image of page 1

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

View Full DocumentRight Arrow Icon
2 Outline for Topic 5 Overview of equity market: stocks and indices Equity investing: stock-picking or portfolio approach? Ht t i f i k ? Qti How to quantify risk? Quant review Benefits of diversification Equities © Anna A. Obizhaeva 1. What Stocks Are? Stocks (or equities) are ownership shares in a publicly held corporations. Main features of common stocks: Voting rights (each share entitles its owners to one vote on any matters at the corporation’s annual meeting). Rights to dividends (each share entitles its owners to a share in the financial benefits of ownership, e.g. dividends). Usually dividends are paid quarterly. Equities © Anna A. Obizhaeva Main characteristics of common stocks: Residual claim (first bondholders, then stockholders) Limited liability (stockholders can not lose more than invested)
Background image of page 2
3 Types of Stocks There are different types of stocks: tk • common stocks, • non-voting stocks, • preferred stocks. Equities © Anna A. Obizhaeva Stocks - Main Info Equities © Anna A. Obizhaeva
Background image of page 3

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

View Full DocumentRight Arrow Icon
4 A Simple Formula Return on investment between two dates 0 and 1 is computed as: It $ X d l l i t h t k t d t 0 Invest $X dollars in the stock at date 0. • If there are any dividend payments between dates 0 and 1, then reinvest them into the stock. • If the value of investment at time 1 is , then return is 1 V Equities © Anna A. Obizhaeva X X V R = 1 Computing Stock Returns: No Dividends What is the return on stock between dates 0 and 1. With $X d ll b h f th t k t d t 0 h P X • With $X dollars, buy shares of the stock at date 0, where is the date 0 price. • At date 1, these shares are worth , where is the date 1 price. Then, the return on the stock (R) is due to the capital gains : 1 P 0 / x = 0 P x 1 1 xP V = Equities © Anna A. Obizhaeva 0 0 1 1 0 1 P P P X X P P X X X xP R = = =
Background image of page 4
5 Computing Stock Returns: Dividends We will now assume that there is a dividend payment at date 1. With $X dollars, buy shares of the stock at date 0, where 0 / P X x = is the date 0 price. At date 1, these shares are worth , where is the date 1 price. Moreover, they pay a dividend , where is the date 1 dividend. Total return on the stock (R) is due to dividend yield & capital gains : 1 P 0 P x 1 xP 1 xD 1 D Equities © Anna A. Obizhaeva 0 0 1 0 1 0 0 1 1 1 1 ) ( ) ( P P P P D P P P D X X D P x R + = + = + = Computing Stock Returns: Example Compute the return on investment into stock ABC, if stock price in year 1 is $100 and in year 2 is $120 (ex-dividends). Moreover, the company paid $2 as a dividend in year 2.
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/02/2011 for the course BMGT 343 taught by Professor Staff during the Fall '08 term at Maryland.

Page1 / 28

Topic 5 - BMGT 343: Investments Prof. Anna Obizhaeva...

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