Chapter 9 Notes - Cost of Capital

Chapter 9 Notes - Cost of Capital - Financial Management...

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Financial Management – Chapter 9 What is Value? Financial value – the worth of a stream of cash flows Modeled – as a present value Required rate of return Investors’ minimum acceptable rate of return on any investment The discount rate used to calculate value The value of a security is independent of any investor’s holding period When an investor sells a security, the price received is the present value of future benefits This is the same value the investor would receive by not selling the security Value vs. Price Value – what something is worth Price – what something sells for Value and price often differ Two groups of investment analysts Technical – prices depend on psychology, are often very different from value Fundamental – prices depend on economics and oscillate around their values Traditional Bond Has both an interest coupon (an annuity) and a face value (a future value)
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  • Spring '10

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