mI. Chapter 5: The Time Value of Money
A. Future Value and Compounding
1. Future Value (FV) refers to the amount of money an investment will grow to
over some period of time at some given interest rate.
2. Investing for a single period
a. If you invest fo
1
CHAPTER2
SHOWMETHEMONEY:THEFUNDAMENTALSOFDISCOUNTED
CASHFLOWVALUATION
Inthelastchapter,youwereintroducedtothenotionthatthevalueofanassetis
determined by its expected cash flows in the future. In this chapter, you will begin
makingthislinkbetweenvalueand
Capital Budgeting: In Class Problems
Corporate Finance: Moeller
Excel Formulas
Make sure you know how to anchor cells, i.e. $a$1, a$1 and $a1, appropriately and
efficiently design formulas.
If not, then try the following simple problems on Excel.
1. You a
Problems: Second Group
Moeller- Corporate Finance
1.
You have been hired as the CEO of Nortex Sports Corp. This company
manufactures and designs in-line skates, skis and snow boards. Your assistant has
prepared various reports summarizing the financial po
Solutions: Third Group
Finance-Moeller
Remember: Rounding on larger problems like WACC calculation will lead to slightly different
results. When I do my calculations I do the computations in Excel with retain the full precision
of the numbers.
1.
a.
If BI
Cost of Capital
Models and methods to estimate the
appropriate r
Remember the guiding principle: The r should reflect the
riskiness of the cash flows
1
Implementing the CAPM Approach
Theoretically can be used on any asset (equity, debt,
assets, etc.) typ
Solutions: First Group
Moeller-Corporate Finance
1. The genetic research firm, Splice and Dice, has created a project that will generate annual
cash flows of $41 million in perpetuity with an estimated return on assets of 17%. The rival firm,
Replication,
Capital Budgeting Problem
Fairways Driving Range
Two friends are considering opening an indoor driving range for golfers.
Because of the popularity of golf in Pittsburgh, they estimate that they could
rent 20,000 buckets at $3 a bucket in the first year,
Q2: What is the price of this bond on 1/1/2016 at the following YTMs?
Face Value
Settlement date
Maturity date
Annual coupon rate
Coupons per year
a)
b)
c)
Yield to maturity
Yield to maturity
Yield to maturity
1000
1/1/2021
1/1/2041
6.00%
2 (Semiannual)
8
Chapter 7
1
CAPITAL ASSET PRICING
AND ARBITRAGE PRICING
THEORY
Investment Management
CAPM & APT
Mondays plan
2
Review (Normality)
Simple portfolio construction (Quiz 2 question: normality)
Two risky assets and one rf (best-CAL) and risk aversion
(diversif
Chapter 6
1
CAPITAL ALLOCATION TO
RISKY ASSETS AND
EFFICIENT DIVERSIFICATION
Investment Management
Efficient Diversification
W H AT H AV E W E E S TA B L I S H E D I N C H A P T E R 5 ?
2
Investment Management
Efficient Diversification
A P O RTF O L I O D
Chapter 5
1
RISK AND RETURN:
MEAN-VARIANCE
Investment Management
Risk and Return: Past and
Prologue
Single-period rate of return
2
Holding-period return (HPR): Rate of growth over an investment
period, i.e. dollars earned per dollar invested
Investment Ma
Chapter 11
1
MANAGING BOND
PORTFOLIOS
Investment Management
Managing Bond Portfolios
Interest rate risk (I)
2
Bondholders experience capital gains (losses) as interest rates fall (rise).
Therefore, bonds are risky even when the coupon and principal paymen
Chapter 10
1
BOND PRICES AND YIELDS
Investment Management
Bond Prices and Yields
Bond characteristics (I)
2
Regular Bond: Security that promises specified payments over a
specified period of time
Face (par) value: Payment at maturity of the bond
Coupon ra
Chapter 9
1
BEHAVIORAL FINANCE
AND TECHNICAL
ANALYSIS
Investment Management
Behavioral Finance and Technical Analysis
behavioral finance
2
Equilibrium implied by CAPM assumes that a large number of
investors behave in a reasonable way, which, on average,
Chapter 8
1
THE EFFICIENT MARKET
HYPOTHESIS
EMH
Question?
2
Suppose ABC Corp. is trading for $100 a share
Suppose you knew with certainty that in 3 days the stock would
be worth $110. What would you do?
What would other investors who knew your informat
Chapter 13
1
EQUITY VALUATION
Investment Management
Equity Valuation
valuation by comparables
2
Investment Management
Equity Valuation
valuation by comparables
3
Fundamental analysts use valuation models to analyze the relationship
between market price an
TCAS Case Analysis
Presented by:
Erica Judd
Cornel Jurca
Jiajia Ou
Jerry Ramos
Summer 2007
International Finance 570
Professor: Dr. Joseph Greco
TCAS Organizational Profile
Transnational Corporate Advisory Services (TCAS) Inc
Founded by three partners in
Date
Bought/Sold Price
Amount
Type
Currency pairReason
1/21/2016 long
0.69317
500.00 stoploss @ .6Aud/USD
Testing Oanda/ looking at GDP
1/21/2016 short
1.01169
35,000.00 market
USD/CHF
Testing Oanda/
1/21/2016 long
7.81985 100,000.00 stoploss @ 6 USD/HKD
Jack Boyle
4/14/16
TCAS WRITE UP
Transnational Corporate Advisory Services (TCAS) currently is facing a predicament as they are
locked into a contract for 2,900,000 CAD and facing problems financing, recently have had a
large reduction in sales and net in
Date
Bought/Sold Price
Amount
Currency pairReason
1/21/2016 long
0.69317
500.00 Aud/USD
Testing Oanda/ looking at GDP of the differen
1/21/2016 short
1.01169
35,000.00 USD/CHF
Testing Oanda/
1/21/2016 long
7.81985 100,000.00 USD/HKD
Testing Oanda/
1/21/20
Course project: OANDA
Please read these instructions carefully. You are responsible for understanding and complying with the project
requirements. If you do not comply with the project requirements, points will be deducted from your grade.
The purpose of
Date
Bought/Sold Price
Amount
Type
Currency pairReason
1/21/2016 long
0.69317
500.00 stoploss @ .6Aud/USD
Testing Oanda/ looking at GDP
1/21/2016 short
1.01169
35,000.00 market
USD/CHF
Testing Oanda/
1/21/2016 long
7.81985 100,000.00 stoploss @ 6 USD/HKD
Heath Fienman
9/12/16
Investment Management
Chapter 5 Homework
1. Rank the following from highest average historical return to lowest average historical
return from 1926 to 2013.
I. Small stocks
II. Long-term bonds
III. Large stocks
IV. T-bills
Answer: I,
1.
2.
3.
4.
5.
6.
7.
Using the formula bar
Entering data with AutoFill
Copying a formula for adjacent cells
Working with relative, absolute and mixed references
Using SUM and AVERAGE
Using scenario manager
Using data table.
Using the Formula Bar
- On an E
Shareholder Votes: From the 2016 Score Card pick a company that has at least one initiative whose
proponent is NOT management. Your company should have the meeting date in the month given to your
group. http:/www.proxymonitor.org/ScoreCard2016.aspx
1) Inv
Heath Fienman
Corp. Finance
Comprehension Checks
9/6/16: What is Corporate Finance?
What part of corporate finance focuses on managing the ratio of debt to equity?
Capital Structuring
9/6/16: Information Asymmetry
When Managers know, but shareholders DO
Formula Sheet for Exam 1
Investments
Instructor: Yao Yu
Formulas for return measures:
HPR
Ending Price Beginning Price Interim Cash Flows
Beginning Price
T
1
R Rt
T t 1
A
Geometric average:
Arithmetic average:
T
1 R 1
R G T
t
t 1
R
1
T
T
1
Var ( R )
Rt