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3rd Midterm Review.

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Presentation on theme: "3rd Midterm Review."— Presentation transcript:

1 3rd Midterm Review

2 Chapter 8 Risks & Rates of Return
What is Risk? Stand-alone Risk Measuring Stand-Alone Risk: the Standard Deviation & the Coefficient of Variation Portfolio Risk Diversifiable Risk Market Risk Expected Rate of Return Risk Aversion & Required Returns Risk premium

3 Risks & Rates of Return Risk in a Portfolio Context: the CAPM
Expected Portfolio Returns Correlation The Beta Coefficient (Avg. Beta or Market Beta = 1) Relationship between Risk & Rates of Return Security Market Line Equation The Impact of Expected Inflation Changes in Risk Aversion (Market Risk Premium) Changes in a Stock’s Beta Coefficient (Portfolio Beta)

4 Chapter 9: Stocks & Their Valuation
Facts about common stock? Legal Rights & Privileges of Common Stockholders Control of the Firm Stock Price vs Intrinsic Value (Undervalue Vs. Overvalued) Why Do Investors & Companies Care About Intrinsic Value? The Discounted Dividend Model (DDM) Growth Rate, g (Supernormal, normal, zero & negative growth) Required Rate of Return VS. Expected Rate of Return Total return (rs )= Dividend Yield + Capital Gains Yield Expected Dividends and price as the Basis for Stock Value

5 Stocks & Their Valuation
Constant Growth Stocks Dividends vs Growth Required Conditions for the Constant Growth Model Valuing Nonconstant Growth Stocks Terminal Date & Terminal Value (Horizon value) Valuing the Entire Corporation The Corporate Valuation Model Comparing the Corporate Valuation & Discounted Dividend Models Firm Multiples Method Preferred Stock


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