AEM1200-0307ToPost

Paper corporate bonds currency swaps equities

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Unformatted text preview: e for the board of directors and share in the profits if dividends are approved. Preferred Stock -- Owners are given preference in the payment of company dividends before common stock dividends are distributed. Preferred stock can also be: Callable Convertible Cumulative Valuing Stocks Valuing Returns Growth Risk Price/Earnings Ratio The Capital Assets Pricing Model r = Rf + beta x ( Km - Rf ) where Rf r is the expected return rate on a security; Rf is the rate of a "risk-free" investment, i.e. cash; Km is the return rate of the appropriate asset class; Km Beta is the volatility of the security relative to the asset class. Beta Other things equal, which is the best strategy? Other a) Short term investment, emphasis on few investments b) Short term investment, emphasis on many investments c) Long term investment, emphasis on few investments d) Long term investment, emphasis on many investments Is it worthwhile to invest in the stock market? Is Rate of return S&P 500 1994-2001: 16%/year Rate of return managed mutual funds: 5%/year “A Random Walk Through Wall Street” Well run stock markets are efficient; Therefore, they cannot be outguessed; Therefore, it is best to hold a portfolio of indexed funds. “Irrational Exuberance” Short-term information and expectations; “Ponzi” mechanisms; Self-reinforcing information flows. Investment Strategies Investment Valuing Stocks Returns Growth Risk Long-term horizon 7-11% historical returns Diversified investments Weighted portfolios Be contrarian! Do not follow speculative bubbles Comparing Investments Take-Aways Take-Aways The capital and securities markets are efficient The ways to aggregate the supply and demand of finance; finance; The main measures for investment valuation are The returns, growth, and risk; returns, In the absence of insider information, it is best to In invest for the long term, diversify, and shun quick movements into the “flavor of the month”. quick Still holds after the 2008 financial meltdown...
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This note was uploaded on 09/18/2013 for the course AEM 1200 taught by Professor Perez,p.d. during the Spring '06 term at Cornell.

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