Foundations of Finance: Uncertainty, Characterizing
Prof. Alex Shapiro
the Return Distribution, and Investor Preferences
Lecture Notes 5
Uncertainty, Characterizing the Return Distribution,
and Investor Preferences
I.
Readings and Suggested Practice Probl
1
CHAPTER 2
Problems and Questions
1. There is a conflict of interest between stockholders and managers. In theory,
stockholders are expected to exercise control over managers through the annual meeting
or the board of directors. In practice, why might th
Chapter 4
(In many of these solutions, you need an equity risk premium. I have used 5.5% as
the premium over long term rates and 8.76% as the premium for stocks over short
term rates, where none is specified but you can use the current premiums from the
b
Chapter 6
Notation: PVA = PV of an annuity, APV: Annuity given PV. PF = Present value, given
future value, FP = Future value, given present value, AFV= Annuity, given future value)
6-1
Project Investment
A
$25
B
$30
C
$40
D
$10
E
$15
F
$60
G
$20
H
$25
I
$
Chapter 7
7-1
Income bonds do share some characteristics with preferred stock. The primary difference
is that interest paid on income bonds is tax deductible while preferred dividends are not.
Income bondholders also have prior claims on the assets, if th
Chapter 8
In many of the solutions, where there is a change in the cost of capital and you are
called upon to compute the change in firm value, there is insufficient information to
estimate future growth in savings. You have two choices: (1) assume a reas
Chapter 9
9-1
a. There are a number of ways in which BMD can increase its debt ratio
1.
It can borrow $1.15 billion and buy back stock.
2.
It can borrow $1.15 billion and pay special dividends.
3.
It can borrow more than $1.15 billion and take projects ov
Chapter 11
11-1
The statement is false. Shareholders collectively receive cash back from the company
when it buys back stock. The key difference is that only those stockholders who want
cash will sell their stock back. The remaining stockholders will get
Chapter 12
12-1
a. Reinvestment Rate = g/ROC = 5%/10% = 50%
b. Firm Value = 100 (1.05)(1-.5)/(.10-.05) = $1050.00
c. Value of Firm = 100/.10 = $1,000.00
If you allow for the lag between reinvestment and expected growth, the expected
operating income next
Chapter 2
1.
Annual Meeting: Stockholders may not show up at annual meetings or be provided with
enough information to have effective oversight over incumbent management. In addition,
the corporate charter is often tilted to provide incumbent managers wit
Applied Corporate Finance
Third Edition
Aswath Damodaran
Chapter 2
1.
Annual Meeting: Stockholders may not show up at annual meetings or be provided with
enough information to have effective oversight over
Foundations of Finance: Equities: Characteristics and Markets
Prof. Alex Shapiro
Lecture Notes 4a
Equities: Characteristics and Markets
I.
Readings and Suggested Practice Problems
II. Secondary Stock Markets in the U.S.
III. Trading on the NYSE
V.
Return
Foundations of Finance: Equities: Positions and Portfolio Returns
Prof. Alex Shapiro
Lecture Notes 4b
Equities: Positions and Portfolio Returns
I.
Readings and Suggested Practice Problems
II. Stock Transactions Involving Credit
III. Portfolio Returns
IV.
Foundations of Finance: Uncertainty, Characterizing
Prof. Alex Shapiro
the Return Distribution, and Investor Preferences
Lecture Notes 5
Uncertainty, Characterizing the Return Distribution,
and Investor Preferences
I.
Readings and Suggested Practice Probl
Foundations of Finance: Asset Allocation: Risky vs. Riskless
Prof. Alex Shapiro
Lecture Notes 6
Asset Allocation: Risky vs. Riskless
I.
Readings and Suggested Practice Problems
II. Expected Portfolio Return: General Formula
III. Standard Deviation of Port
Foundations of Finance: Optimal Risky Portfolios: Efficient Diversification
Prof. Alex Shapiro
Lecture Notes 7
Optimal Risky Portfolios: Efficient Diversification
I. Readings and Suggested Practice Problems
II. Correlation Revisited: A Few Graphical Examp
Foundations of Finance: Index Models
Prof. Alex Shapiro
Lecture Notes 8
Index Models
I.
Readings and Suggested Practice Problems
II. A Single Index Model
III. Why the Single Index Model is Useful?
IV. A Detailed Example
V.
Two Approaches for Specifying In
Foundations of Finance: Index Models
Prof. Alex Shapiro
Lecture Notes 8
Index Models
I.
Readings and Suggested Practice Problems
II. A Single Index Model
III. Why the Single Index Model is Useful?
IV. A Detailed Example
V.
Two Approaches for Specifying In
Foundations of Finance: The Capital Asset Pricing Model (CAPM)
Prof. Alex Shapiro
Lecture Notes 9
The Capital Asset Pricing Model (CAPM)
I.
Readings and Suggested Practice Problems
II.
Introduction: from Assumptions to Implications
III.
The Market Portfol
Foundations of Finance: Concepts and Tools for Portfolio,
Equity Valuation, Fixed Income, and Derivative Analyses
Professor Alex Shapiro
Lecture Notes 2
Concepts and Tools for Portfolio, Equity Valuation,
Fixed Income, and Derivative Analyses:
Application
Foundations of Finance: Money Market and Debt Instruments
Prof. Alex Shapiro
Lecture Notes 3
Money Market and Debt Instruments
I.
Readings and Suggested Practice Problems
II. Bid and Ask
III. Money Market
IV. Long Term Credit Markets
V.
Additional Reading