台湾财务管理 lecture9(Introduction to Risk, Return, and the Opportunity Cost of Capital)
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台湾大学课件—财务管理—lecture3(ch3)
approximation formula
R e a l i n t . r a t e n o m i n a l i n t . r a t e - i n f l a t i o n r a t e
Inflation
Example
If the interest rate on one year govt. bonds is 5.0% and the inflation rate is 2.2%, what is the real interest rate?
Future Values
Future Value of $100 = FV
FV$100(1r)t
Future Values
FV$100(1r)t
Example - FV What is the future value of $100 if interest is compounded annually at a rate of 6% for five years?
PV(13.008)020$2,572
Present Values
Discount Factor = DF = PV of $1
DF
1 (1r)t
Discount Factors can be used to compute the present value of any cash flow.
Time Value of Money
(applications)
The PV formula has many applications. Given any variables in the equation, you can solve for the remaining variable.
R e a l i n t . r a t e n o m i n a l i n t . r a t e - i n f l a t i o n r a t e
Inflation
Example
If the interest rate on one year govt. bonds is 5.0% and the inflation rate is 2.2%, what is the real interest rate?
Future Values
Future Value of $100 = FV
FV$100(1r)t
Future Values
FV$100(1r)t
Example - FV What is the future value of $100 if interest is compounded annually at a rate of 6% for five years?
PV(13.008)020$2,572
Present Values
Discount Factor = DF = PV of $1
DF
1 (1r)t
Discount Factors can be used to compute the present value of any cash flow.
Time Value of Money
(applications)
The PV formula has many applications. Given any variables in the equation, you can solve for the remaining variable.
taiwan财务管理_lecture7(ch7)
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7- 13
Blooper Industries
Year 0
Cap Invest 10,000
WC
1,500
Change in WC 1,500
Revenues
Expenses
Depreciation
could lead to erroneous decisions.
Example A project costs $2,000 and is expected to last 2
years, producing cash income of $1,500 and $500 respectively. The cost of the project can be depreciated at $1,000 per year. Given a 10% required return, compare the NPV using cash flow to the NPV using accounting income.
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Inflation
Example
You own a lease that will cost you $8,000 next year, increasing at 3% a year (the forecasted inflation rate) for 3 additional years (4 years total). If discount rates are 10% what is the present value cost of the lease?
taiwan财务管理_lecture1(PPT)
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Organizing a Business
Who owns the business?
Are managers and owners separate? What is the owner’s liability? Are owners & the business taxed separately?
Sole Proprietorship
The Manager
Partnership
Partners
No
No
Unlimited No
Unlimited (exceptions)
No
Corporation
Shareholders Usually Limited Yes
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1- 4
Topics Covered
Organizing a Business The Role of The Financial Manager Financial Markets Who Is The Financial Manager Corporate Goals & Incentives Value Maximization
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第一页，共三十页。
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1- 2
授課進度:
1. 02/22 導論 (Text: ch.1)
taiwan财务管理_lecture4(ch4)
Premium Bond
Discount Bond
5
10
15
20
25
30
Time to Maturity
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4- 17
Interest Rate Risk
3,000
2,500
30 yr bond
2,000
$ Bond Price
4- 12
Bond Yields
Calculating Yield to Maturity (YTM=r)
If you are given the price of a bond (PV) and the coupon rate, the yield to maturity can be found by solving for r.
make specified payments to the bondholder. Coupon - The interest payments made to the
bondholder. Face Value (Par Value or Maturity Value) - Payment
at the maturity of the bond. Coupon Rate - Annual interest payment, as a
PV
60 (1.056 )1
60 (1.056 )2
1,060 (1.056 )3
PV $1,010 .77
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taiwan财务管理_lecture5(ch5)
Seasoned Issue - Sale of new shares by a firm that has already been through an IPO
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Stocks & Stock Market
5- 16
Valuing Common Stocks
If a firm elects to pay a lower dividend, and reinvest the funds, the stock price may increase because future dividends may be higher.
5- 2
Topics Covered
Stocks and the Stock Market Book Values, Liquidation Values and
Market Values Valuing Common Stocks Simplifying the Dividend Discount Model Growth Stocks and Income Stocks
5- 17
Valuing Common Stocks
Growth can be derived from applying the return on equity to the percentage of earnings plowed back into operations.
g = return on equity X plowback ratio
6000
5777.6
5000
4481.7
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5- 4
Stocks & Stock Market
5- 16
Valuing Common Stocks
If a firm elects to pay a lower dividend, and reinvest the funds, the stock price may increase because future dividends may be higher.
5- 2
Topics Covered
Stocks and the Stock Market Book Values, Liquidation Values and
Market Values Valuing Common Stocks Simplifying the Dividend Discount Model Growth Stocks and Income Stocks
5- 17
Valuing Common Stocks
Growth can be derived from applying the return on equity to the percentage of earnings plowed back into operations.
g = return on equity X plowback ratio
6000
5777.6
5000
4481.7
taiwan财务管理_lecture9(ch9)
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9- 14
Risk and Diversification
Deviation from
Squared
Year Rate of Return Average Return Deviation
1994
Capital Gain Initial Share Price
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9- 5
Rates of Return
Dividend Yield = 1.25 74
.017 or 01.7%
Capital Gain Yield = 28 74
9- 16
Stock Market Volatility 1926-1998
Std Dev
60 50 40 30 20 10
0
1926 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998
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rate of return
=
x
of return
in first asset
on first asset
( )( ) fraction of portfolio rate of return
+
x
in second asset
on second asset
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©The McGraw-Hill Companies, Inc.,2001
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Standard deviation = squared root of variance = 12.66%
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9- 16
Risk and Diversification
( )( ) Portfolio rate fraction of portfolio
9- 19
Risk and Diversification
Portfolio standard deviation
Unique risk
Market risk
0
5
10
15
Number of Securities
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1.31
-23.44
549.43
1995
37.43
12.68
160.78
1996
23.07
-1.6
2.82
1997
33.36
8.61
74.13
1998
25.58
3.83
14.67
Total
123.75
801.84
Average rate of return = 123.75/5 = 24.75
Variance = average of squared deviations = 801.84/5=160.37
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Risk and Diversification
Deviation from
Squared
Year Rate of Return Average Return Deviation
1994
rate of return
=
x
of return
in first asset
on first asset
( )( ) fraction of portfolio rate of return
+
x
in second asset
on second asset
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1990 1998
Year End
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9- 10
Rates of Return 1926-1998
60
Percentage Return
40
20
0
-20
Common Stocks
-40
Long T-Bonds
+ 40 + 10 + 10 - 20
(2) Deviation from Mean
+ 30 0 0
- 30
(3) Squared Deviation
900 0 0
900
Variance = average of squared deviations = 1800 / 4 = 450
Standard deviation = square of root variance = 450 = 21.2%
9- 17
Stock Market Volatility 1926-1998
Std Dev
60 50 40 30 20 10
0
1926 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 1998
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Risk and Diversification
Diversification - Strategy designed to reduce risk by spreading the portfolio across many investments.
9- 5
Rates of Return
Dividend Yield =
Dividend Initial Share Price
Capital Gain Yield =
Capital Gain Initial Share Price
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Value of a portfolio holding shares in 500 firms. Holdings are proportional to the number of shares in the issues.
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Third Edition
Chapter 9
Introduction to Risk, Return, and the Opportunity Cost of Capital
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Brealey Myers Marcus
slides by Matthew Will
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9- 8
Market Indexes
Dow Jones Industrial Average (The Dow)
Value of a portfolio holding one share in each of 30 large industrial firms.
Standard & Poor’s Composite Index (The S&P 500)
9- 1
台湾财务管理 lecture9(Introduction to Risk, Return, and the Opportunity
Cost of Capital)
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9-F2 undamentals of Corporate Finance
9- 3
Topics Covered
Rates of Return 73 Years of Capital Market History Measuring Risk Risk & Diversification Thinking About Risk
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9- 18
Risk and Diversification
Portfolio standard deviation
0
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5
10
15
Number of Securities
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T-Bills
-60 26 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Source: Ibbotson Associates
Year
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Expected Return
9- 12
Measuring Risk
Variance - Average value of squared deviations from mean. A measure of volatility.
Standard Deviation - Average value of squared deviations from mean. A measure of volatility.
Expected market interest rate on normalrisk
=
+
return
Treasury bills
premium
(1981)23.3% =
14
+
9.3
(1999)14.1% =
4.8
+
9.3
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Measuring Risk
Coin Toss Game-calculating variance and standard deviation
(1) Percent Rate of Return
9- 9
The Value of an Investment of $1 in 1926
1000
Inde x
10
0.1
1930
1940
Source: Ibbotson Associates
Irwin/McGraw-Hill
Common Stocks Long T-Bonds T-Bills