1
Chapter 9 Capital Market Theory and Asset Pricing Models
Outline
Capital Market Theory
1. Capital market theory builds on Markowitz _ theory.
2. Capital market theory provides a model for _ risky assets.
3. Two models:
(a) Capital Asset Pricing Model (_
FIN 352 Investments (Summer 2016)
Instructor: Dr. Chang
Chapter 6 Returns and Risks from Investing
Lecture outline (Weeks 3)
The Basis of Investment Decisions
1. Return on investment
2. Risk involved with this investment
Return 101
1. The rate of return (
FIN 352 Investments (Summer 2016)
Instructor: Dr. Chang
Chapter 3 Indirect Investing
Lecture outline
Indirect Investing
Figure 3.1 (p. 53).
1.
2.
3.
4.
Alternative to direct investment in or ownership of securities.
Refers to buying and selling the shares
FIN 352 Investments (Summer 2016)
Instructor: Dr. Chang
Chapter 4 Securities Markets and Market Indices
Lecture outline (Week 5)
The Role of Financial Markets
1. Help firms and governments raise cash by selling claims against themselves.
2.
Provide a plac
Chapter 1 - Investments: Background and Issues
Investment vs. investments
Real assets vs. financial assets
Financial markets and the economy
Investment process
Competitive markets
Players in investment markets
Financial crisis of 2008
Recent trends
Invest
Chapter 8 - Market Efficiency
Random walks and efficient market hypothesis (EMH)
Implications of EMH
The role of portfolio manager in an efficient market
Evidence of market efficiency and anomalies
Interpretation of EMH
Random walks and efficient market h
CHAPTER 2
Risk and Return: Part I
1
Topics in Chapter
Basic return concepts
Basic risk concepts
Stand-alone risk
Portfolio (market) risk
Risk and return: CAPM/SML
2
Determinants of Intrinsic Value:
The Cost of Equity
Net operating
profit after taxes
Requi
Chapter 15 - Options Markets
Option contract
Option trading
Values of options at expiration
Options vs. stock investments
Option strategies
Option-like securities
Option contract
Options are rights to buy or sell something at a predetermined price on or b
Chapter 10 Stock Valuation
Outline
Fundamental Analysis
1. Capitalization of expected income
(a) Dividend discount model
(b) Free cash flow model
2. Multiple of earnings approach
e.g., price/earnings multiples
3. Valuation relative to a financial performa
1
Chapter 7 Portfolio Theory
Outline
Investment Decisions
1. Investment decisions involve _.
(a) Risk that an expected return will not be realized.
(b) Investors must think about return distributions, not just a single return.
2. Investment decisions focu
1
Chapter 6 Returns and Risks from Investing
Oultine
The Basis of Investment Decisions
1. Return
(a) Represent growth in wealth and purchasing power.
(b) Two types of returns:
(1) Expected return (ER)
(2) Actual return (AR)
(c) Two measures of historical
Chapter 11 Stock Analysis and Strategy
Outline
Impact of the Overall Market on Stocks
1. Aggregate market movements remain the largest single factor explaining fluctuations in both
individual stock prices and portfolios of stocks.
(a) _ risk is the single
Chapter 15 Company Analysis
Outline
Fundamental Analysis
1. Goal:
(a) Estimate the firms intrinsic value.
(b) Select under- or overvalued securities.
2. Models:
(a) Dividend discount model:
(b) FCF model:
(c) An earnings multiplier model:
3. What is the m
Chapter 17 Bond Yields and Prices
Oultine
Bond Basics 101
1.
Bonds are used by _ and _ to raise large sums of capital.
2.
Bonds are viewed as _ debt instruments (or IOUs) that represent the issuers
contractual obligation. IOU is an abbreviation, in phonet
1
Chapter 19 Options
Outline
The last lecture has come.
Derivative Securities 101
1. The value of a derivative security is derived from its connected underlying security.
2. Futures and options contracts:
(a) Both have standardized features that allow the
FIN 352 Investments
Instructor: Dr. Chang
Summer 2016
Chapter 2 Investment Alternatives
Lecture Outline Week 1
The Role of Financial Markets
1. Help firms and governments raise cash by selling claims against themselves.
2. Provide a place where investors
FIN 352 Investments (Summer 2016)
Lecture outline
Instructor: Dr. Chang
Topic 1 Introduction to Investments
Investments?
1.
2.
Investors should buy low and sell high in order to build wealth over time.
The investment process involves analytical analysis o
Market Anomalies
Data Mining
Weak form market efficiency
Semi-strong form market efficiency
Strong form market efficiency
Abnormal returns
Bubble
Momentum
Mean Revision
Random Walk
In-Sample vs. Out-of-Sample
Back-testing
Techniques or strategies that app
What are the three steps in our basic retirement
planning calculation?
How do we incorporate inflation into our
calculation?
How does the asset allocation decision affect the
basic three steps in our retirement planning
calculation?
What are actions that
Professor Dow
Review of Percentages
Writing Percentages
Percentages can be written in a number of different ways. For example, twelve percent can be written
as a:
Percentage: 12%
Decimal: 0.12
Fraction: 12/100
All of these mean the same thing, but you nee
Creating a Personal
Financial Plan
Overview
Setting goals are important and often used to measure success. However, simply setting goals does not
ensure you will someday accomplish them. Achieving goals requires establishing a plan. Planning is
important
FIN 352 Professor Dow
Worksheet: Calculating Returns
The Basics
Say that you started with $2,000 and a year later you have $2,500. You can calculate the return in two
ways:
1) 2,500/2,000 = 1.25 This is the return relative. Subtract 1 to get the return. =
According to Modern Portfolio Theory, the risk of
a portfolio is
According to Modern Portfolio Theory, the risk of a
single asset is
Criticisms of Modern Portfolio Theory
Fat tails
Risk
Uncertainty
Black Swan Risk
Risk that cant be diversified away
Risk t
Finance 352 Investments I
Review Notes for Final Exam
1.
2.
3.
4.
5.
6.
7.
Chapter 15
Option contract: concepts
Option trading: concepts and calculations
Values of options at expiration: concepts and calculations
Options vs. stock investments: concepts an