Stocks and Their Valuation
Common Stock - Provides ownership in a corporation with resulting voting rights and residual
Features of Common Stock:
Residual claim on income
Residual claim on assets
Risk and Return: The Basics
Which is better?
(1) 6% return with no risk, or
(2) 20% return with risk.
Cannot say - need to know how much risk comes with the 20% return.
What do we know so far?
We know why returns (rates) vary between different s
Time Value of Money
Future Value of a Lump Sum
Present Value of a Lump Sum
Future Value of Cash Flow Streams
Present Value of Cash Flow Streams
Uneven Series of Cash Flows
Other Compounding Periods
Bonds and Their Valuation
Bond Valuation - value the cash flows
coupon payment - interest payment (coupon rate * principal) - usually paid every 6 months.
maturity value = principal or par value = $1000
Five year corp. bond pay coupo