Introduction to Markets
Contents
Basics of Indexes
Different Types of Indexes
Primary Markets Vs Secondary Markets
Stock Exchanges and Trading Systems
Short Selling
Margin Trading
Basic Equity Indexes
BOND CHARACTERISTICS AND TYPES
Bonds
Bonds as IOUs with coupon and principal payments.
Treasuries ($ 5T), Municipals ($2T), Agency ($2T), Corporates ($4T), Mortgages ($4T), Asset Backed
($1.5T).
Large
Investments
TOP DOWN OR BOTTOM UP ANALYSIS?
The usual practice as recommended by the CFA Institute is a top-down approach to analyzing
equities.
First is a look at macro-economic conditions (usually
Rates of Return(Review and More)
Rates of Return
Single period, and with dividends.
Multiple periods, averaging, APR and EAR.
Adjusting returns for Taxes
Adjusting returns for Inflation
IRA Accounts a
CHAPTER 14: PROBLEMS 1-9
1.
a. Catastrophe bondA bond that allows the issuer to transfer catastrophe risk from
the firm to the capital markets. Investors in these bonds receive a compensation for taki
Technical Analysis: Towards valuation
Contents
Why analyse equites
In the beginning was Technical Analysis
Charts and Candlesticks
Trends and Moving Averages
Other indicators and Terminologies
Towards
Fundamental Valuation-2
GROWTH AND THE P/E RATIO
Canreworkthedividendgrowthmodelas:
Po=El /k+PVGO(PVoggrowthopportunities).
Thinkofthefirsttermasthevalueofassetsinplace(discatperp)andtherestasgrowth
o
Fundamental Valuation
Fundamental Analysis
So, in addition to (or instead of) studying such charts, why not examine accounting data?
Notions of Book Value, Liquidation Value, Replacement Value
Book v
Introduction to Investments
Learning Outcomes
Real assets Vs Financial assets
Global levels of financial assets
Players, Banks, mutual funds, hedge funds.
Role of Financial Analysts
Retail Investors
R
Handout 3a
Financial Derivatives; 2016-17
Prof. Shashi Murthy
Topic 3, Chapter 5 Pricing Forwards &
Futures, Part 1. This handout covers a
subset of the issues listed in the Course
Outline under Topic
Handout 5c
Financial Derivatives; 2016-17
Prof. Shashi Murthy
This is a continuation of Handout 5a (Topic 5a,
Chapter 11, No-arbitrage Restrictions on Option
Prices, Chapter 11).
Here we examine the e
Handout 6b
Financial Derivatives; 2016-17
Prof. Shashi Murthy
Topic 6b, Chapter 13, The Binomial Model
This handout covers only part (b) of topic 6. It
covers:
More on (Hedge &) Replicating Portfolio
Handout 4
Financial Derivatives; 2016-17
Prof. Shashi Murthy
Topic 4, Chapter 10 Mechanics of Options Markets
Omitted: Warrants; ESOPs; Convertibles
1
1
Review of Option Types
A call is an option to
Handout 3c
Financial Derivatives; 2016-17
Prof. Shashi Murthy
Topic 3, Chapter 5 Pricing Forwards & Futures, last part
To be read after Handout 3a, Handout 3b1, &
Handout 3b2 (the last 2 are Word file
Handout 6a
Financial Derivatives; 2016-17
Prof. Shashi Murthy
Topic 6a, Chapter 13, The Binomial Model
This handout covers only part (a) of topic 6. It
covers:
Hedge & Replicating Portfolios
Risk-neut
Markets may fail for various reasons to deliver
the socially optimal outcome:
Externalities
Imperfect competition
Asymmetric information
Externalities
Public goods
Externalities
Till now we assumed t
8/3/2016
ECONOMIC PROFIT
The concept of economic profit
Accounting profit
is equal
to total revenue
minus
explicit costs
Economic profit
is equal
to total revenue
minus
all opportunity costs.
Therefor
8/18/2016
Game Theory
Games
Game theory was developed to analyse situations
in which strategic decisions have to be made.
A game is a situation in which a number of
individuals make decisions, and eac
8/23/2016
Bertrand Model
Bertrand Model
The simplest possible oligopoly market is
one with two firms (a duopoly) that
produce identical (homogeneous)
goods
There are only two firms in the industry
(
Perfect competition vs. Monopoly
Perfect competition vs. Monopoly
Monopoly is inferior to perfect competition
in two respects.
(1) In perfect competition, the long run
equilibrium is when price is dr
Pricing Strategies for Monopolist
We have assumed so far that the
monopolist charges the same price to
every buyer
If the monopolist can set different prices
for different customers, it can be shown
Monopoly
Monopoly
A monopoly is the sole producer of a commodity
that has no close substitutes and faces many
buyers.
The existence of the downward-sloping
demand curve sets a constraint on the
monop
8/1/2016
ECONOMIC PROFIT
The concept of economic profit
Accounting profit
is equal
to total revenue
minus
explicit costs
Economic profit
is equal
to total revenue
minus
all opportunity costs.
Therefor
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CHAPTER 10
The Fundamentals of Capital Budgeting
Learning Objectives
1. Discuss why capital budgeting decisions are the most important decisions made by a
firms management.
2. Explain the benefits of