Some Lessons from
Capital Market History
Performance analysis of an
investment requires investors to
measure returns over time.
Return and risk being intricately
related, return measurement helps in
the understanding of investment ris
Textbook: Essentials of Corporate Finance (Asia Global
Edition) by Stephen A. Ross, Randolph W. Westerfield,
Bradford D. Jordan, Raymond Wong, and Ben Wong
Due on Nov. 24th
Describe the portfolio
Deliverable: a 2-page memo
the Excel worksheet should be in the appendix
can include other materials in the appendix if
Equity Markets and Stock Valuation
Major financing vehicle for corporations
Recorded as equity in the balance sheet
Stockholders (or shareholders) own part of the
Unlike bonds, periodic income is not fixed
Discounted Cash Flow
Valuation (Part 1)
In Chapter 4, the cash flow stream is
quite simple: one cash flow today
and one cash flow in the future.
What if there are multiple cash flows
in the future?
5.1 Future Value of Multiple Pay
The Time Value of Money
Key idea: One dollar today is worth more than
one dollar tomorrow.
This is because you can invest your money in
an interest-bearing account that grows in
value over time.
The value of money depend
Discounted Cash Flow
Valuation (Part 2)
Links to Previous Lectures
In Section 5.2, we mainly deal with annual cash
flows and annual interest rates
Even if we see monthly or quarterly cash flows,
the corresponding periodic rates are given to yo
Time: 9:30 ~ 11:30, Oct. 24th (Sat.)
Place: AC2, Room1511
No class on Oct. 20th
Covers Ch. 1, 4~7, 10~11
Formula sheet and practice exam will be available
You can use non-programmable calculators, but
not cell phones.
Making Capital Investment
Last week, we learned
This week, we focus on the estimation of the
numerator: incremental free cash flows.
The model is known as the Discounted Cash
Flow (DCF) Model.
Estimating Cash Flow for P
Interest Rates and Bond Valuation
Nominal and Real Interest Rates
Inflation is the loss in purchasing power of a
Holding constant the quality of goods, inflation is
measured by a percentage increase in the price of a