The Sustainable Growth Rate
Sustainable Growth Rate ROE Retention Ratio
ROE (1 - Payout Ratio)
Return on Equity (ROE) = Net Income / Equity
Payout Ratio = Proportion of earnings paid out as dividends
Retention Ratio = Proportion of earnings retained fo

Time Value of Money
Opening Discussion
Interest Rate: An Interpretation
Future Value of a Single Cash Flow
Simple Interest and Compound Interest
Compounding Frequency
Annuities: Future Value
Present Value of a Single Cash Flow
Annuities: Present Value
Mul

Category/
Index
52 Week
Open
High
Low
Close
Sectoral
High
Low
Full Market
Capitalisation
( Cr. )
% to Total
Mkt Cap
Turnover
( Cr. )
% to Total
Turnover
AUTO
10386.45
10449.14
10232.45
10275.31
10829.10
7894.04
318578.58
4.90
58.36
1.70
BANKEX
13146.96
13

Security Analysis and Portfolio
Management
Text Book Investment Analysis and
Portfolio Management By Reilly &
Brown, Thomson
R1Financial Management By Prasana
Chandra
R2Modern Investment & Security Analysis
By Rusell & Farell, McGraw Hill
R3Investments: A

Macroeconomic and Market Analysis
Questions to be answered:
What are the expected and the
empirical relationships between
economic activity and security
markets?
What is the macroeconomic
approach to estimating future
market returns?
Fundamental Analysi

Company Analysis
Company
Analysis is concerned with two broad
categories of information Internal and External.
Internal information consists of data and events
made public by the firm concerning operations.
External sources are those generated
independent

VALUATION OF BONDS
AND STOCKS
Corporate Bonds
Mortgage bonds
Collateral trust bonds Borrower pledge financial
assets
Equipment trust certificates Proceeds used to
fund equipment which serves as collateral.
Collateralized mortgage obligations (CMOs)
s

Approaches to Stock Valuation
Book Value
Book value per share is the amount per share that
would be received if all the firms assets were sold for
their exact book value and if the proceeds remaining
after paying all liabilities were divided among common

Covariance and Correlation
Correlation coefficient varies from -1 to +1
rij
Cov ij
i
j
where :
rij the correlatio n coefficien t of returns
i the standard deviation of R it
j the standard deviation of R jt
Correlation Coefficient
It can vary only in

Portfolio Securities having return and risk
characteristics in combination. Portfolios
may or may not take on the aggregate
characteristics of their individual parts.
Portfolio Analysis deals with risk and return
for individual securities and considers th

Derivatives
Overview
What are Derivatives: An Introduction
Overview of different types of derivatives
Forwards
Futures
Options
Derivatives Defined
An instrument whose value is derived from
another security or any other variable
Is has no independen

How Do We Measure The Rate Of
Return On An Investment ?
The pure rate of interest is the
exchange rate between future
consumption (future dollars) and
present consumption (current
dollars). Market forces determine
this rate.
$1.00 4% $1.04
How Do We Measu

Company Analysis
Stock Valuation Problems
Stock Valuation Model
Constant growth model Problem 1
If the company estimates that its dividend in 2004 will
equal $1.5 and required return by the investors is
assumed to be 15%. What is the current market price

Derivatives
Discussion Points
What are Derivatives: An Introduction
Global growth of Derivatives
Domestic Derivatives Market
Overview of different types of derivatives
Forwards
Futures
Options
Derivatives Defined
An instrument whose value is derived from

Lecture 1
Investments, Capital markets and the Economy
Ramana Sonti
BITS Pilani, Hyderabad Campus
Semester II: 2015-16
Agenda
Investments: A brief introduction
A brief overview of capital markets
Capital markets around the world
Who cares about t

How Do We Measure The Rate Of
Return On An Investment ?
The pure rate of interest is the
exchange rate between future
consumption (future dollars) and
present consumption (current
dollars). Market forces determine
this rate.
$1.00 4% $1.04
How Do We Measu

Security Analysis and Portfolio
Management By
Text Book Investment Analysis and
Portfolio Management By Reilly &
Brown, Thomson
R1Financial Management By Prasana
Chandra
R2Modern Investment & Security Analysis
By Rusell & Farell, McGraw Hill
R3Investments

Macroeconomic and Market Analysis
Questions to be answered:
What are the expected and the
empirical relationships between
economic activity and security
markets?
What is the macroeconomic
approach to estimating future
market returns?
Fundamental Analysi

The nature of options on financial
futures
An option
an agreement between two parties in which
one gives the other the right, but not the
obligation, to buy or sell a specific asset at a
set price for a specified period of time.
The buyer of an option
p

Security Analysis and Portfolio
Management By
Text Book Investment Analysis and
Portfolio Management By Reilly &
Brown, Thomson
R1Financial Management By Prasana
Chandra
R2Modern Investment & Security Analysis
By Rusell & Farell, McGraw Hill
R3Investments

Company Analysis
Company
Analysis is concerned with two broad
categories of information Internal and External.
Internal information consists of data and events
made public by the firm concerning operations.
External sources are those generated
independent

Background
Assumptionsto maximize the
As an investor you want
returns for a given level of risk.
Your portfolio includes all of your assets and
liabilities
The relationship between the returns for
assets in the portfolio is important.
A good portfolio is

Risk of a Portfolio
Portfolio
Risk (SD)
Portfolio Risk
(Adding Assets to a Portfolio)
Unsystematic (diversifiable) Risk
M
Systematic (non-diversifiable) Risk
0
# of
Stocks
Risk of a Portfolio
Portfolio
Risk (SD)
Portfolio Risk
(Adding Assets to a Portfoli

How Do We Measure The Rate Of
Return On An Investment ?
The pure rate of interest is the
exchange rate between future
consumption (future dollars) and
present consumption (current
dollars). Market forces determine
this rate.
$1.00 4% $1.04
How Do We Measu

Stock Exchanges
Stock exchanges are auction markets involving a bidding
process in a specific physical location.
Investors are represented by brokers who represent both
buyers and sellers in securities transaction.
Brokers attempt to obtain best price pos

INDUSTRY ANALYSIS
INDUSTRY ANALYSIS
Direction of Change for overall market
need not necessarily lead to similar
changes in all industry groups.
Heavy goods industries( automobiles,
rubber, steel, glass etc.) fare worse in
economic recession than do consum

Risk of a Portfolio
Portfolio
Risk (SD)
Portfolio Risk
(Adding Assets to a Portfolio)
Unsystematic (diversifiable) Risk
M
Systematic (non-diversifiable) Risk
0
# of
Stocks
Risk of a Portfolio
Portfolio
Risk (SD)
Portfolio Risk
(Adding Assets to a Portfoli

VALUATION OF BONDS
AND STOCKS
Four Basic Models
FVn
=
PV0(1+k)n
=
PV(FVIFk,n)
PV0
=
FVn[1/(1+k)n]
=
FV(PVIFk,n)
A (1+k)n - 1
k
=
A(FVIFAk,n)
= A 1 - [1/(1+k)n] =
k
A(PVIFAk,n)
FVAn =
PVA0
PV0
k
FVn
n
A
=
=
=
=
=
present value or beginning amount
inter

Company Analysis
Stock Valuation
What is Common Stock?
Why value is important?
Determinants of value
Dividend yield versus capital gains
Dividend discount models
Common Stock
Ownership in a firm
Equity Capital Long term funds provided by the firms