Chapter 6
Bonds and Bond Valuation
LEARNING OBJECTIVES
1. Understand basic bond terminology.
2. Applying time value of money equation to
price the bond.
3. Understand the difference between annual
and semiannual bonds.
4. Understand the key features of ze
4- 1
Chapter 3
Principles of
The Time Value of
Money
Finance
4- 2
Learning Objectives
Time Value of Money
Calculate Future Value and
understand compounding.
Calculate Present Value and
understand discounting.
Calculate interest rates
Simple and Compo
Chapter 7
Production Process
Waleed Rafi
[email protected]
PRINCIPLES OF
MICROECONOMICS
ELEVENTH EDITION
CASE FAIR OSTER
PEARSON
Prepared by: Fernando Quijano w/Shelly Tefft
The Production Process:
The Behavior of
Profit-Maximizing Firms
7
CHAPTER OUTLINE
Chapter 1
Fundamental Concepts
and Basic Tools
Principles of Finance
Lecture 1
1- 2
Topics Covered
Overview of Basics of Finance
The Role of The Financial Manager
4 As of Financial Manager
Goals of the Corporation/ Finance
Manager
1- 3
Definition of Finan
1- 1
Chapter 2
Financial
Statements
Principles of Finance
Lecture 4
1- 2
Topics Covered
Objective and importance of Financial
Statements
Main types of Financial Statements
The Cash Flow Statement
Objective of Financial Statements
A Finance Managers poi
Chapter 5
Principles of
Finance
4- 2
Learning Objectives
1. Discuss how interest rates are quoted.
2. Compute the effective annual rate (EAR)
on a loan or investment.
3. Apply the TVM equations by accounting
for the compounding periods per year.
4. Explai
ESTIMATING THE COST OF CAPITAL
we are required to calculate the expected return for fama french fro
Inputs
Market Portfolio
Benchmark
Asset
Asset Type
Market Portfolio Benchmark
SPDR
CRSP
ETF
VWMR
DJ World
Stock Index
1
Type
Stoc
k
US FF
Port
Country
ETF
FIRM AND PROJECT VALUATION
Inputs
Valuation Object
Date 0 Proj Investment or Firm Cap
Tax Rate
Unlevered Cost of Equity Capital
Riskfree Rate=Cost of Riskfree Debt
Infinte Horizon Growth Rate
Include Infinite Horizon?
Valuation Object
Fir
Project
m
Five E
A
1
2
3
4
5
6
7
8
9
BOND PRICING
B
C
D
E
F
G
H
I
J
Annual Payments
Inputs
Number of Periods to Maturity (T)
Face Value (PAR)
8
8
$1,000
20
3.25%
6
$35.00
7
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
Discount Rate / Pe
THE YIELD CURVE
Yield Curve Inputs
Today's Date
One Month Treasury Bill
Three Month Treasury Bill
Six Month Treasury Bill
One Year Treasury Strip
Two Year Treasury Strip
Three Year Treasury Strip
Four Year Treasury Strip
Five Year Treasury Strip
Ten Year
NPV USING GENERAL DISCOUNTING
(in thousands of $)
Nominal and Real Rates
NPV Using General Discounting
$60.00
0
$40.00
$20.00
$0.00
($20.00)
($40.00)
Cash Flows
($60.00)
Present Value of Each
Cash Flow
($80.00)
($100.00)
($120.00)
Inputs
Period
0
Cash Flo
SINGLE CASH FLOW
Present Value
Single Cash Flow - Present Value
Inputs
Single Cash Flow
Discount Rate / Period
$1,000.00
20
6.0%
6
$1,400.00
$1,200.00
$1,000.00
$800.00
Number of Periods
5
5
$600.00
Cash Flows
$400.00
Present Value
$200.00
$0.00
0
1
2
3
4
ANNUITY
Present Value
Inputs
Payment
Discount Rate / Period
Number of Periods
Annuity
$80.00
8
6.0%
6
5
5
$140.00
$120.00
$100.00
$80.00
Cash Flows
$60.00
Present Value
$336.99
6
Present Value of
Each Cash Flow
$40.00
$20.00
$0.00
0
1
2
3
4
Period
Annuity
Capital Budgeting
Overview
What Capital Budgeting means?
Budgeting implies allocation of resources.
e.g., budgeting for expenditures, investment, etc.
That is, capital budgeting implies allocation of capital,
allocating long-term capital to maximize pr
Operating Leverage and Business Risk
vs. Financial Leverage and Financial Risk
Balance Sheet
Income Statement
Operating Leverage
ST Assets
Debt
LT Assets
Equity
Financial Leverage
Sales
- Cost of Goods Sold
Gross Margin
- SG&A
EBIT
- Interest
EBT
- Tax
Ne
Chapter 5
Time Series Analysis and
Forecasting
M.M. Ben Jemaa University of Dammam
1
Forecasting Outlines
Forecasting in Operations Management
Seven Steps in the Forecasting
Categories and Models of Forecasting (Focus
on Time-Series Forecasting)
Measure t
Chapter 6
Equity and other financial Markets Analysis:
Fundamental Anlysis
1
CHAPTER OBJECTIVES
Examine the relationships between the economy and the stock market.
Analyze the economic factors that affect stock prices.
Explain conceptually how the market
Chapter 2
Learning Objectives
Explain Generic Principles All Investors Must Know.
Classify asset into different classes.
Distinguish between traditional assets and alternative
assets.
Put yourself in an investor shoes
You have $1.000.000 in your savin
Efficient Markets
Hypothesis and Behvioral
Finance
Chapter 8
12
-1
Efficient Markets
In perfectly efficient market, all securities
are priced correctly
For this Information is the key.
When Market are Efficent:
Prices quickly and fully reflect all avai
CAPM PROBLEMS
Application CML
Solution
APPLICATION 2
Michelin.Inc makes pneumatic equipment.
Its beta is 1.2. The market risk premium is
8.5%, and the current risk-free rate is 6%.
Question: What is the expected return for
Michelin.Inc stock?
Solution
The
Chapter 9
Emerging Markets and
Investment
Opportunities
1
Learning Objectives
Meaning of Emerging markets.
To understand the special concerns
dealing with emerging market economies.
To survey the vast opportunities for trade
offered by emerging market eco
Banks
Chapter 2
1
Banks Definition
The
word bank originates from the
Italian
word banco.
The traditional role of banks has been to
take deposits and make loans.
The interest charged on the loans is
greater than the interest paid on
deposits.
2
Nature o
How Traders Manage
Their Risks
Chapter 7
1
Introduction
The trading function within a financial institution
is referred to as the front office.
The part of the financial institution that is
concerned with the overall level of the risks
being taken, capita
INVESTMENT MEANING
NATURE
AND SCOPE
Objectives
To understand meaning of investment.
What is investing
Classification of investment.
Nature of investment management
Why we invest?
Tools of investment
Features of an ideal investment
Meaning
Investment can b
Chapter 7
Arbitrage Pricing theory
Learning Outcomes
This chapter will provide the necessary
information about Arbitrage Pricing Theory,
We will explain the limitations of CAPM,
We will describe the alternative model : APT
We will define the arbitrage o
Chapter 6
Decision Analysis
University of Dammam
Learning Objectives
Students will be able to:
1. List the steps of the decision-making process.
2. Describe the types of decision-making
environments.
3. Make decisions under uncertainty.
4. Use probability
CAPITAL ASSET
PRICING MODEL
TIXY MARIAM ROY
CAPM
A model that describes the relationship between risk and expected return and
that is used in the pricing of risky securities.
The model was introduced by Jack Treynor, William Sharpe, John Lintner
and Jan M