First draft: August 2003
This draft: January 2004
The Capital Asset Pricing Model: Theory and Evidence
Eugene F. Fama and Kenneth R. French
The capital asset pricing model (CAPM) of William Sharpe (1964) and John Lintner
(1965) marks the birth of asset pr

Fundamentals of Financial Management 2015
TUTORIAL 5 RISK AND RETURN
1.
Textbook chapters:
Chapter 11 (p. 338): 1, 2, 14, 17, 18, 20, 21, 22
Chapter 12 (p. 363): 1, 6, 12, 13, 25, 25
2.
You intend to make an investment in one stock and have the following

1.
a.
Coupon rate = 6%, which remains unchanged. The coupon payments are fixed at $60
per year.
b.
When the market yield increases, the bond price will fall. The cash flows are discounted at
a higher rate.
c.
At a lower price, the bonds yield to maturity

fundamental of financial management
January 1, 2015
TUTORIAL: TIME VALUE OF MONEY
1. Chapter 5: 4, 5, 6, 10, 14, 20, 22, 25, 28, 30, 32, 37, 45, 48, 51, 58, 60, 64, 74, 78,
p.146.
2. Suppose you make an investment of $1,000 now. This first year the
invest

4.
With simple interest, you earn 4% of $1,000, or $40 each year. There is no interest on interest.
After 10 years, you earn total interest of $400, and your account accumulates to $1,400. With
compound interest, your account grows to $1,000 (1.04)10 = $1

2.
Dividend yield = dividend/price = DIV1/P0
0.08 = 2.40/P0 P0 = $30
Est time: 0105
3.
The preferred stock pays a level perpetuity of dividends. The expected dividend next year is the
same as this years dividend ($8).
a.
b.
c.
$8.00/0.12 = $66.67
$8.00/0.

CAPITAL BUDGETING REVISION
NOTES TO REMEMBER:
Only consider incremental/relevant cash flows (i.e. cash flows that are associated with
the project or those that happen as a result of accepting the project)
Ignore sunk costs
Include all opportunity costs
I

TOPICS COVERED
Bond characteristics
Bond valuation
Coupon bonds, semi-annual coupon bonds
Zero-coupon bonds
Bond yield
Current yield
Yield to maturity (YTM)
Rate of return
Relationship between market interest rate and
bond price
Bond premiums an

TIME VALUE
OF MONEY
(I)
Lecturer: Le Dang Thuy
Trang, MSc.
TOPICS COVERED
Time
Value of Money concept
Present Value vs. Future Value
Simple Interest vs. Compound Interest
Multiple Cash Flows
Future value of multiple cash flows
Present value of multipl

LECTURE 1:
INTRODUCTION TO
CORPORATE
FINANCE
CHAPTER OUTLINE
Business definition & major forms of a
business organization.
The Financial Manager
The Goal of Financial Management
The Agency Problem and Control of the
Corporation
Financial Markets and the C

TIME VALUE
OF MONEY
(II)
Lecturer: Le Dang Thuy
Trang, MSc.
TOPICS COVERED
Perpetuity
Cash Flow
Present Value of a Perpetuity
Annuity
Cash Flows: Ordinary Annuity &
Annuity Due
Future Value of an Annuity
Present Value of an Annuity
Inflation
& Time Val

FUNDAMENTAL OF FINANCIAL MANAGEMENT
January
1, 2015
TUTORIAL: TIME VALUE OF MONEY
1.
Chapter 5: 4, 5, 6, 10, 14, 20, 22, 25, 28, 30, 32, 37, 45, 48, 51, 58, 60, 64, 74,
78, p.146.
2.
Suppose you make an investment of $1,000 now. This first year the invest

FUNDAMENTAL OF FINANCIAL MANAGEMENT
January
1, 2015
TUTORIAL: BONDS
1. Textbook Chapter 6: 1, 2, 7, 9, 10, 11, 17, 19, 21, 22 p.178
2. Staind, Inc., has 7.5 percent coupon bonds on the market that have 10 years left to
maturity. The bonds make annual paym

FUNDAMENTAL OF FINANCIAL MANAGEMENT
January
1, 2015
TUTORIAL: STOCKS
1. Textbook Chapter 7: 2, 3, 11, 13, 14, 15, 17, 19, 20, 21 p.217
2. The JacksonTimberlake Wardrobe Co. just paid a dividend of $1.95 per share on
its stock. The dividends are expected t

TIME VALUE OF MONEY
1/ Nine years ago, Ann entered into a $34,000 mortgage loan of 20 years and at a fixed rate of
12% p.a. (compounding monthly) with HSBC.
a. What is Anns monthly payment?
b. How much does she still owe the bank now?
c. Ann decides to re

FUNDAMENTAL OF FINANCIAL MANAGEMENT
TUTORIAL: CAPITAL BUDGETING
Problem 1
You are currently working as an independent consultant for Cong Nghiep Constructions
and LPG (Liquefied Petroleum Gas) company. You have been asked by the president to
evaluate the