Chapter 4: The Time Value of Money-1
Chapter 4: The Time Value of Money
Big Picture: Cash flows at different points of time are in different units
=> cant compare or combine unless convert to the same units (same point in time)
I. Solving time value of mo
Chapter 20: Financial Options-1
Chapter 20: Financial Options
I. Options Basics
A. Understanding Option Contracts
Basic Terms:
financial option: contract that gives the owner the right to buy or sell an asset at a
fixed price in the future
call option: ri
Chapter 11: Optimal Portfolio Choice and the CAPM-1
Chapter 11: Optimal Portfolio Choice and the Capital Asset Pricing
Model
Goal: determine the relationship between risk and return
=> key to this process: examine how investors build efficient portfolios
Chapter 7: Fundamentals of Capital Budgeting-1
Chapter 7: Fundamentals of Capital Budgeting
Big Picture: To value a project, we must first estimate its cash flows.
Note: most managers estimate a projects cash flows in two steps:
1) Impact of the project o
Chapter 21: Option Valuation-1
Chapter 21: Option Valuation
I. The Binomial Option Pricing Model
Intro:
1. Goal: to be able to value options
2. Basic approach: create portfolio of stock and risk-free bonds with same payoff as
option
3. Law of One Price: v
Chapter 15: Debt and Taxes-1
Chapter 15: Debt and Taxes
I. Basic Ideas
1. Corporate Taxes
=> interest expense is tax deductible
=> as debt increases, corporate taxes fall
=> incentive to fund the firm with debt
2. Personal taxes
=> equity income is usuall
Chapter 22: Real Options-1
Chapter 22: Real Options
I. Introduction to Real Options
A. Basic Idea
=> firms often have the ability to wait to make a capital budgeting decision
=> may have better information later
=> may be able to avoid negative outcomes
=
Chapter 16: Financial Distress, Managerial Incentives, and Information-1
Chapter 16: Financial Distress, Managerial Incentives, and Information
I. Basic Ideas
1. As debt increases, chance of bankruptcy increases
=> bankruptcy costs make debt less attracti
Chapter 10: Capital Markets and the Pricing of Risk-1
Chapter 10: Capital Markets and the Pricing of Risk
Big Picture:
1) To value a project, we need an interest rate to calculate present values
2) The interest rate will depend on the risk of the project
Chapter 3: Arbitrage and Financial Decision Making-1
Chapter 3: Arbitrage and Financial Decision Making
Big picture:
1) If the price of an asset is less than its value, we should buy it.
2) If the price of an asset is greater than its value, we should sel
Chapter 14: Capital Structure in a Perfect Market-1
Chapter 14: Capital Structure in a Perfect Market
I. Overview
1. Capital structure: mix of debt and equity issued by the firm to fund its assets
Note: usually use leverage ratios like debt/assets to meas
Chapter 5: Interest Rates-1
Chapter 5: Interest Rates
Big Picture: Cash flows usually occur more than once per year and interest usually compounds
more than once per year. We have to adjust for these.
I. Interest Rate Quotes and the Time Value of Money
A.