{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Slides6_HD - Corporate Finance(ECON W4280 Lecture 6 Tri Vi...

Info icon This preview shows pages 1–17. Sign up to view the full content.

View Full Document Right Arrow Icon
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 1 Corporate Finance (ECON W4280) Lecture 6 Tri Vi Dang Columbia University
Image of page 1

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

View Full Document Right Arrow Icon
Image of page 2
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 3 Midterm Exam The midterm exam is on 10/23 - during regular class time and place. It is an open book exam. - Textbook, lecture notes and your own notes can be used - Scientific calculator is allowed - NOT allowed are all other electronic devices (e.g. laptops, tablet PCs, smartphones)
Image of page 3

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

View Full Document Right Arrow Icon
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 4 Lecture 6 I.1. Valuation concepts N. Portfolio mechanics, diversification O. CAPM P. Other pricing models, market efficiency
Image of page 4
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 5 I.1.N. Portfolio Mechanics
Image of page 5

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

View Full Document Right Arrow Icon
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 6 Remark - Suppose investors care about mean and variance of asset returns. - This section discusses mean-variance portfolio management and introduces the key tools for deriving desirable portfolios. Motivating Example Investing $10K in Apple AT&T Exxon Walmart
Image of page 6
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 7 Share Price
Image of page 7

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

View Full Document Right Arrow Icon
Image of page 8
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 9
Image of page 9

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

View Full Document Right Arrow Icon
Image of page 10
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 11 Remark - Investing $3K in Apple $2K in AT&T $2K in Exxon $3K in Walmart generate an expected return of 0.0675% and variance of 0.0072% per day - Expected return is higher than AT&T, Exxon and Walmart - Variance is lower than any single stocks - What is the smallest possible variance?
Image of page 11

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

View Full Document Right Arrow Icon
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 12 Review Properties of the mean Suppose 1 , .... , N R, und X 1 , .... , X N random variables (M1) E[ 1 X 1 ]= 1 E[X 1 ] (M2) E[X 1 + .... +X N ]= E[X 1 ]+….+E[X N ] (M3) E[ 1 X 1 +….+ 2 X 2 ]= 1 E[X 1 ]+….+ N E[X N ]
Image of page 12
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 13 Covariance-Matrix V X 1 , .... ,X N are random variables, i ² is varianz of X i und ij is covariance between X i und X j . V is the Kovarianz-Matrix ² σ σ σ σ ² σ σ σ σ ² σ V N N2 N1 2N 2 21 1N 12 1 Note, ij = ji .
Image of page 13

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

View Full Document Right Arrow Icon
Image of page 14
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 15 Properties of Variance Suppose 1 , .... , N R, =( 1 , .... , N ) a N-vector, X 1 , .... , X N random variables and V the Covariance Matrix. (V1) Var[ 1 X 1 ]= 1 ² Var[X 1 ] (V2) Var[ 1 X 1 +….+ N X N ]= V Remark Formula (V2) plays a central role in portfolio theory (and asset management).
Image of page 15

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

View Full Document Right Arrow Icon
Corporate Finance, Tri Vi Dang, Columbia University, Fall 2013 16 Example S1 (0.25) S2 (0.5) S3 (0.25) X 1 10 20 30 X 2 30 40 10 Interpretation X 1 generates a return of 10% in state 1, 20% in state 2, 30% in state 3.
Image of page 16
Image of page 17
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern