session8 - Session 8 Equities 4 5 6 7 8 00 10 20 30 40 50...

Info iconThis preview shows pages 1–12. 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

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: Session 8 Equities 4 5 6 7 8 00 10 20 30 40 50 60 70 80 90 00 10 S&P Composite: CPI-Adjusted Price (log) 2 US Market History Source: http://www.econ.yale.edu/~shiller/data.htm trend implies 2% annual compound growth 10 20 30 40 50 60 70 90 92 94 96 98 00 02 04 06 08 10 3 Stock Market Risk VIX = Chicago Board Options Exchange Volatility Index High values indicate expectations of a sharp price movement (in either direction) and are manifested as more expensive options prices Source: http://finance.yahoo.com/q?s=^vix 4 Equity Markets & Banks Source: IMF World Economic Outlook (April 2003), When Bubbles Burst , ch2 Equity and Housing Price Busts: Implications for Banks (Years prior, during, and after the bust; x-axis in years) 5 Equities: Key Features common stock (US) par/market values Ordinary shares financial claims votes information Rights primary/secondary trading Stock Exchanges Buying/selling 6 Comparison with Bonds Typically, equities are riskier no fixed coupon larger potential for income variation subordinated Stockholders are well down the pecking order when it comes to paying out 7 Earnings & Dividends A proportion f of post-tax profits is distributed as dividends to shareholders Retained profits can be re-invested in the business earning a return w f = payout ratio 1- f = retention ratio PRE-TAX PROFITS POST-TAX PROFITS (Earnings) RETAINED DISTRIBUTED TAX Growing the business Income for shareholders 8 Some Terminology ? = ?????? ?? ??? = ???? ?? ??? = ???? ?? ??? = ???? ?? ? = ?????? ?? ?????? ? ?? = ?? ?? = ????? ????? = ?? ?? ? ????? ? = ???? ?? = ?????? ?? 9 S&P500 Dividend History 0.0 0.2 0.4 0.6 0.8 0% 1% 2% 3% 4% 5% 6% 1960 1970 1980 1990 2000 2010 Payout ratio (rhs scale) Dividend yield 10 Wal-Mart Dividend Data 25 50 75 100 125 0.00 0.05 0.10 0.15 0.20 0.25 0.30 75 80 85 90 95 00 05 10 Dividend Price (rhs scale) 1.0% 1.5% 2.0% 2.5% 05 06 07 08 09 10 Wal-Mart Dividend Yield Source: http://finance.yahoo.com/q?s=WMT 11 Earnings Growth I Earnings retained for capital investment Delivers additional returns Enabling earnings to grow over time Market forces.......
View Full Document

This note was uploaded on 04/03/2012 for the course ECONOMICS V31.9231 taught by Professor Greenleaf during the Spring '10 term at NYU.

Page1 / 38

session8 - Session 8 Equities 4 5 6 7 8 00 10 20 30 40 50...

This preview shows document pages 1 - 12. Sign up to view the full document.

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