This document provides an overview of chapter 10 from a corporate finance textbook. It discusses key concepts related to risk and return, including probability distributions, expected return, variance, standard deviation, and historical returns of stocks and bonds. Examples are provided to demonstrate how to calculate expected return, standard deviation, and realized annual returns for stocks based on price and dividend data over a period of time. The learning objectives cover defining and applying common risk and return measures as well as explaining the relationship between risk and return.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
Chapter 3 Depository Institutions: Activities and CharacteristicsNardin A
Chapter 3 Depository Institutions: Activities and Characteristics
Foundations of Financial Markets and Institutions 4th edition 2009
Frank J. Fabozzi
Franco Modigliani
Frank J. Jones
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
Chapter 3 Depository Institutions: Activities and CharacteristicsNardin A
Chapter 3 Depository Institutions: Activities and Characteristics
Foundations of Financial Markets and Institutions 4th edition 2009
Frank J. Fabozzi
Franco Modigliani
Frank J. Jones
Income Matching Using Bonds NorCal 2011Brent Burns
Presentation slides from FPA NorCal 2011. Steve Huxley and I presented on how to create pension-like income usning individual bonds. Also contrasted against annuities, dividends and REITs.
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FORMULAS
𝑃𝑉 = 𝐶/(1 + 𝑟)+
𝑃𝑉 = 𝐶 ,-
.
− -
.(-0.)1
2
𝑃𝑉 =
𝐶
𝑟 − 𝑔
51 − 6
1 + 𝑔
1 + 𝑟
7
+
8
𝑃𝑉 = 𝐶/𝑟 𝑃𝑉 = 𝐶/(𝑟 − 𝑔)
𝐸𝐴𝑅 = 61 +
𝐴𝑃𝑅
𝑚
7
=
− 1
𝑃𝑉 = 𝐶 𝑒?.+, 𝑒 = 2.718
1 + 𝑅𝑒𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 =
1 + 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
1 + 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒
𝑃 = 𝑃𝑉(𝐶𝑜𝑢𝑝𝑜𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠) + 𝑃𝑉(𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒)
𝑃T = U
𝐷𝑖𝑣+
(1 + 𝑟)+
𝑃T =
𝐷𝑖𝑣-
(𝑟 − 𝑔)
𝑔 = 𝑅𝑂𝐸 × 𝑃𝑙𝑜𝑤𝑏𝑎𝑐𝑘 𝑅𝑎𝑡𝑖𝑜
𝜎^ = _𝑤`
a𝜎`
a + 𝑤b
a𝜎b
a + 2𝑤`𝑤b𝜌`b𝜎`𝜎b
𝛽e =
𝜌e,=𝜎e
𝜎=
=
𝑐𝑜𝑣(𝑟e,𝑟=)
𝜎=a
𝑟 = 𝑟f + 𝛽(𝑟= − 𝑟f)
𝑊𝐴𝐶𝐶 =
𝐷
𝑉
(1 − 𝑇i)𝑟j +
𝑃
𝑉
𝑟 +
𝐸
𝑉
𝑟k
𝐷𝑂𝐿 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡𝑠
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
= 1 + (𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠)/(𝑝𝑟𝑜𝑓𝑖𝑡𝑠)
𝑉q = 𝑉r + 𝑃𝑉 𝑡𝑎𝑥 𝑠ℎ𝑖𝑒𝑙𝑑𝑠 − 𝑃𝑉 𝑐𝑜𝑠𝑡𝑠 𝑜𝑓 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑑𝑖𝑠𝑡𝑟𝑒𝑠𝑠
𝑉q = 𝑉s + 𝑇i𝐷
𝑟k = 𝑟t +
j
k
(1 − 𝑇i)(𝑟t − 𝑟j)
University of Guelph
Gordon S. Lang School of Business and Economics
Department of Economics and Finance
ECON*2560DE: Theory of Finance Summer Semester 2019
Key Concepts for Theory of Finance
The following is a list of some of the major concepts that have been covered during the course that you
should make sure you understand in your preparation for the final exam.
Ch. 1 – Goals and Governance of the Firm
The goal of managers is to maximize firm value
Advantages and disadvantages of a corporation
The difference between real and financial assets
Ch. 2 – Financial Markets and Institutions
Functions of financial markets and institutions
Ch. 3 – Accounting and Finance
Balance sheet, Income statement, statement of Cash flows
Market value vs. book value
Ch. 5 - Time Value of money
Single cash flow: future value, present value, how to find discount rate
Annuity: present value, how to find cash flow, annuity due, growing annuity, multiple payments
per year, amortization
Perpetuity: present value, how to find cash flow, how to find discount rate, growing perpetuity
Relationship between discount rate and PV
Inflation – real vs. nominal interest rates
Compounding (EAR)
Ch. 6 – Valuing Bonds
Calculate PV with annual or semi-annual coupons
How bond prices vary with interest rates
Relationships between - coupon rate, YTM, current yield, rates of return, and prices
Relationships between risk and maturity, risk and coupon rate
Yield curve
Bond ratings and default premium
You will not be asked to calculate Yield to Maturity
Ch. 7 – Valuing Stocks
Dividend discount model: no growth, constant growth, non-constant growth, sustainable growth
rate
Relationship between price and growth rate, ROE, plowback ratio, discount rate
Market efficiency
Ch. 11 – Introduction to Risk and Return and the Opportunity Cost of Capital
Relationship between risk and return
Unique vs market risk
Benefits of diversificati
Any incorporated company at the end of the financial year is required to prepare financial statements showing the assets & liabilities, profit or loss for the period, a cash flow statement &get it audited. the audited statements along with the auditor's report & directors report with all schedules is to be submitted to the ROC, shareholders at the annual general meeting, banks, financial institutions, all stakeholders.etc
These statements form the basis of ANALYSIS, WHICH CAN BE (A) VERTICAL ANALYSIS ( B)HORIZONTAL ANALYSIS (C )COMPARITIVE STATEMENTS (D)COST ANALYSIS (E)CASH FLOW ANALYSIS AND SO ON 'The main feature of these analyses will be explained with illustrative examples
UNIT 1: INTRODUCTION TO FINANCIAL MANAGEMENT; UNIT 2: TIME VALUE OF MONEY; UNIT 3: FINANCING & DIVIDEND DECISIONS; UNIT 4: INVESTMENT DECISION;UNIT 5: WORKING CAPITAL MANAGEMENT
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
Acetabularia Information For Class 9 .docxvaibhavrinwa19
Acetabularia acetabulum is a single-celled green alga that in its vegetative state is morphologically differentiated into a basal rhizoid and an axially elongated stalk, which bears whorls of branching hairs. The single diploid nucleus resides in the rhizoid.
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
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The scale for value of investment increases by factors of 10, with values marked from 10 to 10,000,000. Six plots are shown. Each begins at $100 in 1925, and they rise to the following values in 2015:
• small stocks = $5,792,572
• S and P 500 = $664,567
• world portfolio = $248,352
• corporate bonds = $22,366
• treasury bills = $2,063
• C P I = $1,378
In general, the plots for small stocks, the S and P 500, and the world portfolio exhibit similar volatility over time, with numerous crests and troughs. Likewise, the plots for corporate bonds, Treasury bills, and C P I exhibit similar volatility over time, with much smoother curves that rise less steeply. The plot for C P I initially falls below the plot for Treasury bills, but the two plots approach the same value after 1945, and remain close until 1979 to 1981. At that time, due to inflation, Treasury bill yields peak at 15%, making that plot rise with greater steepness than the plot for C P I. The following table provides other dates or ranges of dates noted on the graph, with their corresponding changes in the plots for small stocks and for the S and P 500:
Date Change in small stocks Change in S and P 500
1928 to 1932 negative 92% negative 84%
1937 to 1938 negative 72% negative 50%
1968 to 1974 negative 63% negative 37%
1987 negative 34% negative 30%
2000 to 2002 negative 26% negative 45%
2007 to 2009 negative 67% negative 51%
Graph a, for value after 1 year plots values in dollars versus investments in years. The horizontal axis ranges from 19 25 to 20 15 in increments of 10 and vertical axis ranges from 0$ to 300$ in increments of 100. The graph displays four lines. The line for small stocks passes through (19 25, $90), (19 35, $160), (19 45, $90), (19 55, $150), (19 65, $100), (19 75, $130), (19 85, $100), (19 95, $80), (2005, $110), and (20 15, $105). The line for S and P 500 passes through (19 25, $105), (19 35, $60), (19 45, $100), (19 55, $105), (19 65, $90), (19 75, $133), (19 85, $110), (19 95, $120), (2005, $105), and (20 15, $102). The line for corporate bonds passes through (19 25, $105), (19 35, $103), (19 45, $100), (19 55, $100), (19 65, $95), (19 75, $105), (19 85, $110), (19 95, $100), (2005, $110), and (20 15, $105). The line for treasury bills passes through (19 25, $101), (19 35, $100), (19 45, $99), (19 55, $100), (19 65, $100), (19 75, $101), (19 85, $100), (19 95, $100), (2005, $102), and (20 15, $100). Graph b, for value after 5 year plots values in dollars versus investments in years. The horizontal axis ranges from 19 25 to 2005 in increments of 10 and vertical axis ranges from 10$ to 1000$. The graph displays four lines. The line for small stocks passes through (19 25, $70), (19 35, $250), (19 45, $200), (19 55, $230), (19 65, $300), (19 75, 500), (19 85, $90), (19 95, $200), and (2005, $100). The line for S and P 500 passes through (19 25, $200), (19 35, $100), (19 45, $350), (19 55, $200), (19 65, $110), (19 75, $180), (19 85, $300), (19 95, $100), and (2005, $110). The line for corporate bonds passes through (19 25, $110), (19 35, $150), (19 45, $105), (19 55, $100), (19 65, $100), (19 75, $150), (19 85, $130), (19 95, $200), and (2005, $130). The line for treasury bills passes through (19 25, $110), (19 35, $100), (19 45, $101), (19 55, $105), (19 65, $107), (19 75, $115), (19 85, $113), (19 95, $110), and (2005, $100). Graph c, for value after 10 year plots values in dollars versus initial investments in years. The horizontal axis ranges from 19 25 to 2005 in increments of 10 and vertical axis ranges from 10$ to 1000$. The graph displays four lines. The line for small stocks passes through (19 25, $300), (19 35, $800), (19 45, $500), (19 55, $550), (19 65, $150), (19 75, $1100), (19 85, $300), (19 95, $600), and (2005, $400). The line for S and P 500 passes through (19 25, $300), (19 35, $400), (19 45, $700), (19 55, $600), (19 65, $150), (19 75, $500), (19 85, $600), (19 95, $400), and (2005, $300). The line for corporate bonds passes through (19 25, $300), (19 35, $250), (19 45, $200), (19 55, $110), (19 65, $110), (19 75, $300), (19 85, $250), (19 95, $200), and (2005, $190). The line for treasury bills passes through (19 25, $110), (19 35, $100), (19 45, $110), (19 55, $120), (19 65, $200), (19 75, $300), (19 85, $250), (19 95, $110), and (2005, $100). Graph d, for value after 20 year plots values in dollars versus initial investments in years. The horizontal axis ranges from 19 25 to 19 95 in increments of 10 and vertical axis ranges from 100$ to 10,000$. The graph displays four lines. The line for small stocks passes through (19 25, $1,500), (19 35, $3,000), (19 45, $1,000), (19 55, $900), (19 65, $5,000), (19 75, $3,000), (19 85, $9,000), and (19 95, $1,000). The line for S and P 500 passes through (19 25, $600), (19 35, $1000), (19 45, $1500), (19 55, $500), (19 65, $650), (19 75, $1500), (19 85, $1000), and (19 95, $400). The line for corporate bonds passes through (19 25, $350), (19 35, $250), (19 45, $250), (19 55, $300), (19 65, $600), (19 75, $800), (19 85, $750), and (19 95, $600). The line for treasury bills passes through (19 25, $200), (19 35, $120), (19 45, $250), (19 55, $300), (19 65, $600), (19 75, $600), (19 85, $400), and (19 95, $300). All values are estimated.
A table displays stock price data for Barrick Gold Corporation at the start and end of the year. The Table has 3 Rows and 4 columns. The columns have the following headings from left to right. Current Stock Price, dollars, Possible Stock Price in one year, dollars, Possible Return, R, Probability, P R. The Row entries are as follows. Row 1. 100, 140, 40 percent, 0.25. Row 2. 100, 110, 10 percent, 0.50. Row 3. 100, 80, Negative 20 percent, 0.25.
The data depicted is as follows:
AMC:
• Return, minus 0.25; Probability, 50 percent
• Return, 0.45; Probability, 50 percent
BFI:
• Return, minus 0.20; Probability, 25 percent
• Return, 0.10; Probability, 50 percent
• Return, 0.40; Probability, 25 percent
Four graphs plot frequency in number of years versus ranges of annual returns in percentage rates. Because bars are only plotted for the ranges of annual return percentage that occur with a frequency greater than zero, there are only 3 bars plotted for 1 month Treasury bills, but there are 8 plots for A A A corporate bonds, 18 plots for the S and P 500, and 28 plots for small stocks. As the distributions widen, the highest plots shrink. The plot with the highest frequency in each distribution is as follows. 1 month T bills = (0 to 5%, 65 years). A A A corporate bonds, (0 to 5%, 36.5 years). S and P 500, (16 to 20%, 10 years). Small stocks, (negative 5 to negative 10%, 8 years).All values estimated.
The scatterplot plots historical average return versus historical volatility, or standard deviation, in percentage. Points are plotted at the following coordinates.
• treasury bill. (4, 4)
• corporate bonds. (6, 6)
• world portfolio. (18, 10.5)
• S and P 500. (20, 12.5)
• mid cap stocks. (27, 15)
• small stocks. (38, 18)
A dotted line rises from (0, 2.5) to (45, 25), passing slightly below corporate bonds and slightly above or through the other points. It is noted that the historic excess return of the S and P 500 is 8.5% greater than that of T bills, but all other values are estimated.
figure 10.7, with the addition of shaded data points in a dense cloud below the dotted line, which represent stocks of one of three types: stocks 1 to 50, stocks 51 to 400, and stocks 401 to 500. This new cloud of data points rises approximately parallel to the dotted line, and below it, between approximate points (25, 7.5) and (45, 15).
The scale for stocks increases by factors of 10, with values marked at 1, 10, 100, and 1000. The plot for type S firms extends horizontally from (1, 30) to (1000, 30). The plot for type I firms falls with decreasing steepness from (1, 30) through (10, 10) and (100, 3.5) to (1000, 1.5). The plot for typical firms falls with decreasing steepness from (1, 30) through (10, 17.5) and (100, 15.5) to (1000, 15.25). All values are estimated.