Lecture 4

Lecture 4 - IMSE3010 Financial Engineering Lecture 4 Common...

Info iconThis preview shows pages 1–8. 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

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: IMSE3010 Financial Engineering Lecture 4 Common Stocks iscrete Time Market Model Discrete Time Market Model Miao Song Dept of Industrial & Manufacturing Systems Engineering eview of Lecture 3 Review of Lecture 3  Fixed-Income Assets  Yield-To-Maturity  Forward Interest Rates  Risk Associated with Bonds  Common Stocks troduction to Stock Markets  Introduction to Stock Markets 2/1/2011 2 2/1/2011 2 genda Agenda  Common Stocks  Introduction to Stock Markets  Discounted Cash Flow Model  Modeling Cash Flows g  EPS, P/E and Growth Opportunity iscrete Time Market Model  Discrete Time Market Model 2/1/2011 3 2/1/2011 3 troduction To Stock Markets Introduction To Stock Markets  What is common stock?  Organization of Stock Market  Primary Market: VC, IPO, Secondary Offering  Secondary Market: exchanges, OTC  Trading in Secondary Market  Trading cost ommission  Commission  Bid-ask spread  Price impact  Buy on margin  Long and short 2/1/2011 4 2/1/2011 4 genda Agenda  Common Stocks  Introduction to Stock Markets  Discounted Cash Flow Model odeling Cash Flows  Modeling Cash Flows  EPS, P/E and Growth Opportunity  Discrete Time Market Model 2/1/2011 5 2/1/2011 5 Discounted Cash Flow Model (DCF)  DCF: Stock price is the present value of future dividend  Inputs Expected future dividend  D t : Expected future dividend  r t : Risk-adjusted discount rate for cash flow at t  Let P denote the expected stock price at t (ex-dividend) t  What is P if you hold the stock forever? Additional assumption: r t = r 2/1/2011 6 2/1/2011 6 Valuation Based on Finite Holding Period hat is P you sell the stock at t = 1?  What is P if you sell the stock at t = 1?...
View Full Document

This note was uploaded on 12/09/2011 for the course IMSE 0301 taught by Professor Song during the Spring '11 term at HKU.

Page1 / 23

Lecture 4 - IMSE3010 Financial Engineering Lecture 4 Common...

This preview shows document pages 1 - 8. Sign up to view the full document.

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