Topic 3
Stock Valuation
FIN 402 - Capital Budgeting and Corporate Objectives
Professor Olga Itenberg
Common Stocks, aka Equity
Common Stocks are nancial assets whose owners are entitled to a residual
Bond Notation and Formulas
Notation
Rates
i
r
y
g
R
Time
m
N
T
Value
An
C
c
F
B
CFn
Vn
=
=
=
=
=
Effective periodic interest rate (= R/m)
Effective annual interest rate
Yield to maturity
Growth rate o
Capital Budgeting and Corporate Objectives
Bond Valuation
Copyright 2007. All Worldwide Rights Reserved. See Credits for permissions.
Latest Revision: August 29, 2017
1.0 Bonds
Bonds are securities th
Capital Budgeting and Corporate Objectives
Valuation of Stocks
Copyright 2007. All Worldwide Rights Reserved. See Credits for permissions.
Latest Revision: August 29, 2017
2.0 Introduction
This lectur
Capital Budgeting and Corporate Objectives
Discounting
Copyright 2006. All Worldwide Rights Reserved. See Credits for permissions.
Latest Revision: August 29, 2017
Lecture 0. The Time Value of Money
W
Warm up Problems for Topic 0 (Discounting) and Topic 1 (Bonds)
*These questions are designed to represent elementary principles, and are NOT representative of problems that you
will find on any exams.
Warm up Problems for Topic 0 (Discounting) and Topic 1 (Bonds)
*These questions are designed to represent elementary principles, and are NOT representative of problems that you
will find on any exams.
FIN402 Questions for Lab Session 1
1. In the article posted about the Powerball jackpot of $1.5 billion, the following details are given:
the cash prize is split into 30 equal payments over the next 2
FIN402 Questions for Lab Session 2
1. A new lottery is created that pays $1000 weekly in perpetuity beginning in time 0. Each week after
time 0, the payment will go up by a weekly increase of .1%. The
Topic 4
Portfolio Analysis
FIN 402 - Capital Budgeting and Corporate Objectives
Professor Olga Itenberg
An Example: Risky Return
Consider three possible lottery tickets with the following payos in 1 y
Topic 2
Bond Valuation
FIN 402 - Capital Budgeting and Corporate Objectives
Professor Olga Itenberg
What is a Bond?
Bond (Debt / Fixed Income): A security that requires the issuer to make
specied inte
Topic 5
Capital Asset Pricing Model (CAPM)
FIN 402 - Capital Budgeting and Corporate Objectives
Professor Olga Itenberg
Capital Asset Pricing Model (CAPM) Assumptions
Assumption 1: Investors only care
Topic 1
Introduction to Corporate Goals and Decisions;
Time Value of Money and Discounting
FIN 402 - Capital Budgeting and Corporate Objectives
Professor Olga Itenberg
Part A: Introduction to
Corporat