Basics of financial management Chapter 10

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Presentation transcript:

Basics of financial management Chapter 10

Financial markets Banks Institutional investors Private investors Meeting place for demanders and suppliers of capital Banks Institutional investors Private investors Businesses Suppliers of capital

Securities Possible return Relative risk Shares High Bonds Reasonable Limited Options Very high Futures Savings Low Very low

Options Buyer Seller Call option Right to purchase a fixed number of objects at the exercise price Obligation to sell a fixed number of objects at the exercise price Put option Right to sell a fixed number of objects at the exercise price Obligation to buy a fixed number of objects at the exercise price

Share option value Intrinsic value Time value Market value n x (MPS – EP) call option n x (EP – MPS) put option Intrinsic value MPO - IVO Time value Market value on the basis of supply and demand Market value

Share option value Put option Market value option Intrinsic value option Time value option EP  MPS Market value option Put option Intrinsic value option Time value option EP  MPS

Futures Price share Interest Dividend Share future price Obligation to buy or sell a specified quantity of an underlying value at an agreed price at a future date Price share Interest Dividend Share future price

Investment ratios Dividend yield Pay-out ratio Price/earnings ratio Dividend ratios Dividend yield Pay-out ratio Dividend per share Market price share Dividend per share Earnings per share Price ratios Price/earnings ratio Price/cash flow ratio Price/book ratio Market price per share Earning per share Market price per share Cash flow per share Market price per share Book value per share

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