- The document discusses key lessons from the history of capital markets, including how to calculate returns on investments and understand the relationship between risk and return.
- It explains how to calculate total dollar return and total percentage return on investments, and defines concepts like dividend yield, capital gains yield, and risk premium.
- Historical data shows that riskier assets like stocks tend to earn higher average returns than less risky assets like bonds, as compensation for bearing more risk. However, there is a chance of losses in any given period.
This document summarizes key concepts from Chapter 10 of the textbook Corporate Finance Thirteenth Edition. It discusses calculating returns on investments, historical return statistics for different asset classes from 1926-2020, measures of risk like standard deviation and variance, and differences between arithmetic and geometric average returns. Small company stocks had the highest average return at 16.2% but also highest risk with a standard deviation of 31.3%, while Treasury bills had the lowest risk at 3.1%. The normal distribution helps explain the spread of returns around the mean. The geometric average return accounts for compounding of returns over time and will be lower than the arithmetic average unless all returns are equal.
The document discusses the trade-off between risk and return in investments. It provides three key points:
1. Expected return represents the marginal benefit of investing while risk is the marginal cost. There is always a trade-off between higher expected return and higher expected risk.
2. The discounted cash flow (DCF) method uses three steps to value risky assets: determining expected cash flows, choosing a discount rate reflecting the asset's risk, and calculating present value.
3. Risk and return are positively correlated both across asset classes and for individual securities - investors require a higher expected return to accept more risk. However, diversification can reduce unsystematic risk for a portfolio.
This document discusses key concepts related to the time value of money, including future value, present value, compound interest, simple interest, annuities, and inflation. It provides examples to illustrate how to calculate future values, present values, interest rates, and real interest rates accounting for inflation. The key concepts are that money has a time value, a dollar today is worth more than a dollar in the future, and compound interest allows money to grow exponentially over time through reinvestment of interest.
The document discusses market volatility and strategies for dealing with it. It defines volatility, looks at historical volatility levels, and discusses how volatility affects investors. It then outlines the wealth management group's strategies, which include repositioning portfolios to focus on quality income assets, employing strategies to dampen volatility, and ensuring portfolios align with clients' goals and risk tolerance.
This document provides an overview of discounted cash flow valuation concepts including time value of money, compounding and discounting rates, and calculations for present and future value of single and multiple cash flows. Key points covered include:
- Calculating future and present value of single cash flows
- Differences between simple and compound interest
- Effective annual rates for different compounding periods
- Formulas and examples for perpetuities, growing perpetuities, and ordinary annuities
- Learning objectives are to understand time value concepts and perform cash flow calculations for valuation
This document contains sample questions and explanations about risk and return concepts such as stand-alone risk, portfolio risk, diversification, and the capital asset pricing model. It provides examples of calculating expected returns, standard deviation of returns, and coefficients of variation for different investments. It also demonstrates how diversification across many randomly selected stocks can significantly reduce stand-alone or idiosyncratic risk while leaving market risk relatively unchanged.
This document summarizes key concepts from Chapter 10 of the textbook Corporate Finance Thirteenth Edition. It discusses calculating returns on investments, historical return statistics for different asset classes from 1926-2020, measures of risk like standard deviation and variance, and differences between arithmetic and geometric average returns. Small company stocks had the highest average return at 16.2% but also highest risk with a standard deviation of 31.3%, while Treasury bills had the lowest risk at 3.1%. The normal distribution helps explain the spread of returns around the mean. The geometric average return accounts for compounding of returns over time and will be lower than the arithmetic average unless all returns are equal.
The document discusses the trade-off between risk and return in investments. It provides three key points:
1. Expected return represents the marginal benefit of investing while risk is the marginal cost. There is always a trade-off between higher expected return and higher expected risk.
2. The discounted cash flow (DCF) method uses three steps to value risky assets: determining expected cash flows, choosing a discount rate reflecting the asset's risk, and calculating present value.
3. Risk and return are positively correlated both across asset classes and for individual securities - investors require a higher expected return to accept more risk. However, diversification can reduce unsystematic risk for a portfolio.
This document discusses key concepts related to the time value of money, including future value, present value, compound interest, simple interest, annuities, and inflation. It provides examples to illustrate how to calculate future values, present values, interest rates, and real interest rates accounting for inflation. The key concepts are that money has a time value, a dollar today is worth more than a dollar in the future, and compound interest allows money to grow exponentially over time through reinvestment of interest.
The document discusses market volatility and strategies for dealing with it. It defines volatility, looks at historical volatility levels, and discusses how volatility affects investors. It then outlines the wealth management group's strategies, which include repositioning portfolios to focus on quality income assets, employing strategies to dampen volatility, and ensuring portfolios align with clients' goals and risk tolerance.
This document provides an overview of discounted cash flow valuation concepts including time value of money, compounding and discounting rates, and calculations for present and future value of single and multiple cash flows. Key points covered include:
- Calculating future and present value of single cash flows
- Differences between simple and compound interest
- Effective annual rates for different compounding periods
- Formulas and examples for perpetuities, growing perpetuities, and ordinary annuities
- Learning objectives are to understand time value concepts and perform cash flow calculations for valuation
This document contains sample questions and explanations about risk and return concepts such as stand-alone risk, portfolio risk, diversification, and the capital asset pricing model. It provides examples of calculating expected returns, standard deviation of returns, and coefficients of variation for different investments. It also demonstrates how diversification across many randomly selected stocks can significantly reduce stand-alone or idiosyncratic risk while leaving market risk relatively unchanged.
Kantian ethics, and Utilitarianism. Choose the theory that you thi.docxtawnyataylor528
Kantian ethics, and Utilitarianism. Choose the theory that you think is better out of these two and briefly describe it. Then discuss why you think this is the better of these two theories.
Can you think of a moral rule that all cultures follow (that you are aware of)? If so, what is this rule and why does every culture practice this moral rule? If not, do you think that there is a moral rule that every culture should practice? What does your answer say about cultural relativism and why?
Choose one of the following theorists - Hobbes, Locke, Rousseau, or Rawls - and briefly describe their views of human nature and their version of the social contract. Then, explain why you chose to discuss this theorist in particular.
One of the biggest objections to Virtue Ethics is that there is no consensus on what counts as a virtue. List two qualities that you believe are virtuous and explain why you feel this way. Given this, do you think that there are any general criteria we can use to decide whether an action is virtuous or not? Why?
Do you think that we have a moral obligation to treat animals well? Why or why not? Does our moral obligation include not eating them?
Moral antirealism, or moral non-objectivism, claims that here are no objective moral rules. If such theories are true, is there any way that we could determine whether something is 'good' or 'bad'? If so, how? If not, why? Finish your post by explaining your views on the idea of moral non-objectivism - do you agree or disagree with this theory? Does it have any merit in its claims?
To what extent have your choices in life been a result of free will? Given this, which theory do you agree with most and why: fatalism, determinism, or existentialism?
FINC 340 INVESTMENTS
FINAL EXAMINATION_04
DIRECTIONS: Here is the Final Examination Question Sheet. Please submit your Final Examinaiton Answer Sheet to your Final Examination Folder.
Please submit your Midterm Examination MS Word format with the following file name: LastNameFirstInitial_MidtermExamAnswerSheet.docx. For example, if you name is John Smith, the file name of your Answer Sheet should be SmithJ_MidtermExamAnswerSheet.docx.
NAME: _____________________________________
Quiz Number
Question
Answer
1
A company has paid $2 per share in dividends for the past several years and plans to continue to do so indefinitely. If an investor’s required return is 13%, what is the most she should pay for a share of this firm’s stock?
A:$15.38
B:$20.00
C:$22.60
D:$26.13
E:$65.00
2
Bond mutual funds offer the following advantages over direct investment in bonds EXCEPT:
A:Better diversification
B:Transaction cost economies
C:Buy and sell individual bonds at individual investor’s discretion
D:Reinvestment of intermediate cash flows
E:Better liquidity
3
A $1,000 par value bond with a 5% coupon that pays interest semiannually and matures in 2 ½ years and has a current price of $977. What is the annualized yield to maturity?
A:3.0%
B:4 ...
The document discusses concepts related to time value of money including compounding, discounting, present and future value. It provides examples of how these concepts can be applied to investments, loans, and other financial decisions over multiple time periods. Key applications mentioned include savings for retirement, valuation of bonds and perpetuities, and capital budgeting.
The document discusses concepts related to time value of money including compounding, discounting, present and future value. It provides examples of how these concepts can be applied to investments, loans, and other financial decisions over multiple time periods. Key applications mentioned include savings for retirement, valuation of bonds and perpetuities, and capital budgeting.
This document provides an introduction to key concepts in finance, including:
1) Present value is used to compare sums of money from different times by discounting future values to their worth today using prevailing interest rates.
2) People are generally risk averse because diminishing marginal utility means losses reduce utility more than equivalent gains increase it. Insurance and diversification help manage risk.
3) An asset's value depends on expected future cash flows discounted at the appropriate interest rate. The efficient markets hypothesis suggests beating the overall market is very difficult.
This chapter introduces fundamental concepts in finance, including present value, risk aversion, and asset valuation. It discusses how present value can be used to compare cash flows over time and explains why people are risk averse due to diminishing marginal utility. Insurance and diversification are introduced as ways for risk-averse individuals to manage risk. The chapter also covers the efficient markets hypothesis and how asset prices are determined based on available information.
- Inflation from 1973-2008 increased 500% while the S&P 500 and bonds ran out of money by 1990 and 1994 respectively when using a 5% withdrawal rate.
- Diversifying across different asset classes with varying risk profiles can increase returns while lowering risks compared to being fully invested in stocks or bonds alone.
- Rebalancing a portfolio periodically helps investors buy low and sell high, lowering risks and increasing returns over the long run.
This seminar\'s original version became part of the template for Prudential Securities coordinated marketing programs. Participating brokers saw an increase in business that was three times the firm average.
This document discusses risk and returns in the venture capital industry. It begins by defining key measures used to calculate returns, such as internal rate of return and value multiples. It then reviews data on real returns achieved by VC firms. The document also discusses estimating the cost of capital for venture capital by applying the Capital Asset Pricing Model and making adjustments for firm size, value, and illiquidity risk factors. Understanding the relationship between risk and returns is important for both venture capitalists and investors in the industry.
The document discusses establishing an investment program and factors to consider when choosing investments. It recommends setting financial goals, performing a financial checkup, and getting money needed to start investing. It describes how safety, risk, income, growth, liquidity, and time horizon affect investment decisions. It also covers asset allocation, investment alternatives like stocks, bonds, mutual funds and real estate, and the importance of the investor's role and using financial information resources.
The document discusses why establishing an investment program is important, including accumulating retirement funds, enhancing income, and saving for major expenditures. It describes assessing factors like safety, risk, income growth and liquidity when choosing investments and explains how asset allocation and investment alternatives like stocks, bonds, mutual funds and real estate can affect an investment plan. The importance of an investor's role in managing their portfolio is also emphasized.
This document discusses the benefits of systematic investment planning through mutual funds. It notes that investing small sums regularly over the long term can significantly grow wealth through the power of compounding. Even seemingly small monthly amounts invested for 20-25 years can grow into large sums. The document provides illustrations of how different monthly investment amounts could appreciate over time at assumed returns of 12% and 15% per year through a systematic investment plan. It emphasizes that systematic investing reduces risks and provides flexibility and convenience compared to lump sum investments.
4113151:SaroFinalAssignment-
Investing.docx
by Svetlana Saro
Submission date: 29-Jun-2019 06:00PM (UTC-0400)
Submission ID: 1147968142
File name: 6-d73b-4a7d-ad1c-f ac44aea1901_SaroFinalAssignment- Investing.docx (248.75K)
Word count: 1609
Character count: 8669
98%
SIMILARITY INDEX
13%
INTERNET SOURCES
2%
PUBLICATIONS
98%
STUDENT PAPERS
1 98%
Exclude quotes Of f
Exclude bibliography Of f
Exclude matches Of f
4113151:SaroFinalAssignment-Investing.docx
ORIGINALITY REPORT
PRIMARY SOURCES
Submitted to Marquette High School
Student Paper
4113151:SaroFinalAssignment-Investing.docx
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unclear.
Hyph. Review the rules f or using punctuation marks.
Missing "," Review the rules f or using punctuation marks.
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Prep. You may be using the wrong preposition.
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Article Error You may need to remove this article.
Article Error You may need to remove this article.
Article Error You may need to use an article bef ore this word.
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4113151:SaroFinalAssignment-Investing.docxby Svetlana Saro4113151:SaroFinalAssignment-Investing.docxORIGINALITY REPORTPRIMARY SOURCES4113151:SaroFinalAssignment-Investing.docx
Investor
profile
questionnaire
Investor profile questionnaire
Find a suitable investment strategy
Your investing strategy should reflect the kind of investor you are—your personal investor profile. This quiz will help you
determine your profile and then match it to an investment strategy that’s designed for investors like you.
The quiz measures two key factors:
YOUR TIME HORIZON
When will you begin withdrawing money from your account and at what rate? If it’s many years away, there may be
more time to weather the market’s inevitable ups and downs and you may be comfortable with a portfolio that has a
greater potential for appreciation and a higher level of risk.
YOUR RISK TOLERANCE
How do you feel about risk? Some investments fluctuate more dramatically in value than others but may have the
potential for higher returns. It’s important to select investments that fit within your level of tolerance for this risk
How to make your choice
Your time horizon
Your risk .
This document provides an overview of key bond concepts including features of bonds, bond valuation, yield measures, and risk assessment. It defines terms like par value, coupon rate, maturity date, and default risk. It discusses how bond values are affected by the required rate of return and explains yields like current yield, yield to maturity, and yield to call. The document also covers bond risk factors, ratings, bankruptcy procedures, and the largest US corporate bond issuances.
This document provides an overview of key concepts related to bonds and their valuation. It discusses features of bonds like par value, coupon rate, and maturity. It also covers bond valuation methods, including calculating yield to maturity and current/capital gains yields. Additional topics include interest rate risk, reinvestment risk, and factors that affect bond ratings and default risk. Worked examples are provided to illustrate bond pricing and yield calculations.
Is Value Investing the “Holy Grail” of financial investing ?Fabio Michetti
Few slides to explain because the value investing is working well vs fundamental analysis and technical analysis
Some simple flowcharts to describe the Value Investing process on stocks and Bond-Stock allocation, bond and Etf, because we are focusing only on process of value investment. What is the competitive advantage and how I can measure it
Because value investing works
Value investing process on stocks
Bond-Stock allocation in value investing
Value investing process on government and corporate bonds
Value investing process on ETFs - Exchange Traded Funds
Value Disinvesting on stocks and ETFs
Measuring competitive advantage via ROIC
Conclusion
Venstone AG | Diferente types d'outils d'investissementVenstone AG
Investir dans votre argent pour augmenter sa valeur et ses capitaux propres via Venstone AG, Zurich. Toutes les informations ont expliqué ici à ce sujet.
The document discusses various topics related to financial markets and interest rates, including different types of financial markets and institutions, how capital is transferred between savers and borrowers, factors that affect interest rates such as production opportunities and inflation, and risks associated with investing overseas such as country risk and exchange rate risk.
The cash flows from the lighting system are:
Year 0: -230,000
Year 1: 90,000
Year 2: 90,000
Year 3: 90,000
If we assume a discount rate of 10%, the present value of these cash flows is:
PV = -230,000 + 90,000/(1.1) + 90,000/(1.1)^2 + 90,000/(1.1)^3 = -$23,000
Since the PV is negative, the investment should not be accepted.
The document discusses various types of investments including stocks, bonds, cash, and mutual funds. It provides details on the sources of profit for each type, how they work, their level of risk, and long-term returns. The document also covers concepts like asset allocation, diversification, inflation, and the importance of starting to invest early.
NIMA2024 | De toegevoegde waarde van DEI en ESG in campagnes | Nathalie Lam |...BBPMedia1
Nathalie zal delen hoe DEI en ESG een fundamentele rol kunnen spelen in je merkstrategie en je de juiste aansluiting kan creëren met je doelgroep. Door middel van voorbeelden en simpele handvatten toont ze hoe dit in jouw organisatie toegepast kan worden.
Brian Fitzsimmons on the Business Strategy and Content Flywheel of Barstool S...Neil Horowitz
On episode 272 of the Digital and Social Media Sports Podcast, Neil chatted with Brian Fitzsimmons, Director of Licensing and Business Development for Barstool Sports.
What follows is a collection of snippets from the podcast. To hear the full interview and more, check out the podcast on all podcast platforms and at www.dsmsports.net
Kantian ethics, and Utilitarianism. Choose the theory that you thi.docxtawnyataylor528
Kantian ethics, and Utilitarianism. Choose the theory that you think is better out of these two and briefly describe it. Then discuss why you think this is the better of these two theories.
Can you think of a moral rule that all cultures follow (that you are aware of)? If so, what is this rule and why does every culture practice this moral rule? If not, do you think that there is a moral rule that every culture should practice? What does your answer say about cultural relativism and why?
Choose one of the following theorists - Hobbes, Locke, Rousseau, or Rawls - and briefly describe their views of human nature and their version of the social contract. Then, explain why you chose to discuss this theorist in particular.
One of the biggest objections to Virtue Ethics is that there is no consensus on what counts as a virtue. List two qualities that you believe are virtuous and explain why you feel this way. Given this, do you think that there are any general criteria we can use to decide whether an action is virtuous or not? Why?
Do you think that we have a moral obligation to treat animals well? Why or why not? Does our moral obligation include not eating them?
Moral antirealism, or moral non-objectivism, claims that here are no objective moral rules. If such theories are true, is there any way that we could determine whether something is 'good' or 'bad'? If so, how? If not, why? Finish your post by explaining your views on the idea of moral non-objectivism - do you agree or disagree with this theory? Does it have any merit in its claims?
To what extent have your choices in life been a result of free will? Given this, which theory do you agree with most and why: fatalism, determinism, or existentialism?
FINC 340 INVESTMENTS
FINAL EXAMINATION_04
DIRECTIONS: Here is the Final Examination Question Sheet. Please submit your Final Examinaiton Answer Sheet to your Final Examination Folder.
Please submit your Midterm Examination MS Word format with the following file name: LastNameFirstInitial_MidtermExamAnswerSheet.docx. For example, if you name is John Smith, the file name of your Answer Sheet should be SmithJ_MidtermExamAnswerSheet.docx.
NAME: _____________________________________
Quiz Number
Question
Answer
1
A company has paid $2 per share in dividends for the past several years and plans to continue to do so indefinitely. If an investor’s required return is 13%, what is the most she should pay for a share of this firm’s stock?
A:$15.38
B:$20.00
C:$22.60
D:$26.13
E:$65.00
2
Bond mutual funds offer the following advantages over direct investment in bonds EXCEPT:
A:Better diversification
B:Transaction cost economies
C:Buy and sell individual bonds at individual investor’s discretion
D:Reinvestment of intermediate cash flows
E:Better liquidity
3
A $1,000 par value bond with a 5% coupon that pays interest semiannually and matures in 2 ½ years and has a current price of $977. What is the annualized yield to maturity?
A:3.0%
B:4 ...
The document discusses concepts related to time value of money including compounding, discounting, present and future value. It provides examples of how these concepts can be applied to investments, loans, and other financial decisions over multiple time periods. Key applications mentioned include savings for retirement, valuation of bonds and perpetuities, and capital budgeting.
The document discusses concepts related to time value of money including compounding, discounting, present and future value. It provides examples of how these concepts can be applied to investments, loans, and other financial decisions over multiple time periods. Key applications mentioned include savings for retirement, valuation of bonds and perpetuities, and capital budgeting.
This document provides an introduction to key concepts in finance, including:
1) Present value is used to compare sums of money from different times by discounting future values to their worth today using prevailing interest rates.
2) People are generally risk averse because diminishing marginal utility means losses reduce utility more than equivalent gains increase it. Insurance and diversification help manage risk.
3) An asset's value depends on expected future cash flows discounted at the appropriate interest rate. The efficient markets hypothesis suggests beating the overall market is very difficult.
This chapter introduces fundamental concepts in finance, including present value, risk aversion, and asset valuation. It discusses how present value can be used to compare cash flows over time and explains why people are risk averse due to diminishing marginal utility. Insurance and diversification are introduced as ways for risk-averse individuals to manage risk. The chapter also covers the efficient markets hypothesis and how asset prices are determined based on available information.
- Inflation from 1973-2008 increased 500% while the S&P 500 and bonds ran out of money by 1990 and 1994 respectively when using a 5% withdrawal rate.
- Diversifying across different asset classes with varying risk profiles can increase returns while lowering risks compared to being fully invested in stocks or bonds alone.
- Rebalancing a portfolio periodically helps investors buy low and sell high, lowering risks and increasing returns over the long run.
This seminar\'s original version became part of the template for Prudential Securities coordinated marketing programs. Participating brokers saw an increase in business that was three times the firm average.
This document discusses risk and returns in the venture capital industry. It begins by defining key measures used to calculate returns, such as internal rate of return and value multiples. It then reviews data on real returns achieved by VC firms. The document also discusses estimating the cost of capital for venture capital by applying the Capital Asset Pricing Model and making adjustments for firm size, value, and illiquidity risk factors. Understanding the relationship between risk and returns is important for both venture capitalists and investors in the industry.
The document discusses establishing an investment program and factors to consider when choosing investments. It recommends setting financial goals, performing a financial checkup, and getting money needed to start investing. It describes how safety, risk, income, growth, liquidity, and time horizon affect investment decisions. It also covers asset allocation, investment alternatives like stocks, bonds, mutual funds and real estate, and the importance of the investor's role and using financial information resources.
The document discusses why establishing an investment program is important, including accumulating retirement funds, enhancing income, and saving for major expenditures. It describes assessing factors like safety, risk, income growth and liquidity when choosing investments and explains how asset allocation and investment alternatives like stocks, bonds, mutual funds and real estate can affect an investment plan. The importance of an investor's role in managing their portfolio is also emphasized.
This document discusses the benefits of systematic investment planning through mutual funds. It notes that investing small sums regularly over the long term can significantly grow wealth through the power of compounding. Even seemingly small monthly amounts invested for 20-25 years can grow into large sums. The document provides illustrations of how different monthly investment amounts could appreciate over time at assumed returns of 12% and 15% per year through a systematic investment plan. It emphasizes that systematic investing reduces risks and provides flexibility and convenience compared to lump sum investments.
4113151:SaroFinalAssignment-
Investing.docx
by Svetlana Saro
Submission date: 29-Jun-2019 06:00PM (UTC-0400)
Submission ID: 1147968142
File name: 6-d73b-4a7d-ad1c-f ac44aea1901_SaroFinalAssignment- Investing.docx (248.75K)
Word count: 1609
Character count: 8669
98%
SIMILARITY INDEX
13%
INTERNET SOURCES
2%
PUBLICATIONS
98%
STUDENT PAPERS
1 98%
Exclude quotes Of f
Exclude bibliography Of f
Exclude matches Of f
4113151:SaroFinalAssignment-Investing.docx
ORIGINALITY REPORT
PRIMARY SOURCES
Submitted to Marquette High School
Student Paper
4113151:SaroFinalAssignment-Investing.docx
PAGE 1
PAGE 2
Article Error You may need to use an article bef ore this word.
Prep. You may be using the wrong preposition.
Missing "," Review the rules f or using punctuation marks.
Article Error You may need to remove this article.
PAGE 3
Proofread This part of the sentence contains an error or misspelling that makes your meaning
unclear.
Hyph. Review the rules f or using punctuation marks.
Missing "," Review the rules f or using punctuation marks.
PAGE 4
Sp. This word is misspelled. Use a dictionary or spellchecker when you proof read your work.
PAGE 5
Missing "," Review the rules f or using punctuation marks.
Prep. You may be using the wrong preposition.
Article Error You may need to use an article bef ore this word.
Article Error You may need to remove this article.
Article Error You may need to remove this article.
Article Error You may need to use an article bef ore this word.
PAGE 6
Sp. This word is misspelled. Use a dictionary or spellchecker when you proof read your work.
Missing "," Review the rules f or using punctuation marks.
Proofread This part of the sentence contains an error or misspelling that makes your meaning
unclear.
PAGE 7
4113151:SaroFinalAssignment-Investing.docxby Svetlana Saro4113151:SaroFinalAssignment-Investing.docxORIGINALITY REPORTPRIMARY SOURCES4113151:SaroFinalAssignment-Investing.docx
Investor
profile
questionnaire
Investor profile questionnaire
Find a suitable investment strategy
Your investing strategy should reflect the kind of investor you are—your personal investor profile. This quiz will help you
determine your profile and then match it to an investment strategy that’s designed for investors like you.
The quiz measures two key factors:
YOUR TIME HORIZON
When will you begin withdrawing money from your account and at what rate? If it’s many years away, there may be
more time to weather the market’s inevitable ups and downs and you may be comfortable with a portfolio that has a
greater potential for appreciation and a higher level of risk.
YOUR RISK TOLERANCE
How do you feel about risk? Some investments fluctuate more dramatically in value than others but may have the
potential for higher returns. It’s important to select investments that fit within your level of tolerance for this risk
How to make your choice
Your time horizon
Your risk .
This document provides an overview of key bond concepts including features of bonds, bond valuation, yield measures, and risk assessment. It defines terms like par value, coupon rate, maturity date, and default risk. It discusses how bond values are affected by the required rate of return and explains yields like current yield, yield to maturity, and yield to call. The document also covers bond risk factors, ratings, bankruptcy procedures, and the largest US corporate bond issuances.
This document provides an overview of key concepts related to bonds and their valuation. It discusses features of bonds like par value, coupon rate, and maturity. It also covers bond valuation methods, including calculating yield to maturity and current/capital gains yields. Additional topics include interest rate risk, reinvestment risk, and factors that affect bond ratings and default risk. Worked examples are provided to illustrate bond pricing and yield calculations.
Is Value Investing the “Holy Grail” of financial investing ?Fabio Michetti
Few slides to explain because the value investing is working well vs fundamental analysis and technical analysis
Some simple flowcharts to describe the Value Investing process on stocks and Bond-Stock allocation, bond and Etf, because we are focusing only on process of value investment. What is the competitive advantage and how I can measure it
Because value investing works
Value investing process on stocks
Bond-Stock allocation in value investing
Value investing process on government and corporate bonds
Value investing process on ETFs - Exchange Traded Funds
Value Disinvesting on stocks and ETFs
Measuring competitive advantage via ROIC
Conclusion
Venstone AG | Diferente types d'outils d'investissementVenstone AG
Investir dans votre argent pour augmenter sa valeur et ses capitaux propres via Venstone AG, Zurich. Toutes les informations ont expliqué ici à ce sujet.
The document discusses various topics related to financial markets and interest rates, including different types of financial markets and institutions, how capital is transferred between savers and borrowers, factors that affect interest rates such as production opportunities and inflation, and risks associated with investing overseas such as country risk and exchange rate risk.
The cash flows from the lighting system are:
Year 0: -230,000
Year 1: 90,000
Year 2: 90,000
Year 3: 90,000
If we assume a discount rate of 10%, the present value of these cash flows is:
PV = -230,000 + 90,000/(1.1) + 90,000/(1.1)^2 + 90,000/(1.1)^3 = -$23,000
Since the PV is negative, the investment should not be accepted.
The document discusses various types of investments including stocks, bonds, cash, and mutual funds. It provides details on the sources of profit for each type, how they work, their level of risk, and long-term returns. The document also covers concepts like asset allocation, diversification, inflation, and the importance of starting to invest early.
NIMA2024 | De toegevoegde waarde van DEI en ESG in campagnes | Nathalie Lam |...BBPMedia1
Nathalie zal delen hoe DEI en ESG een fundamentele rol kunnen spelen in je merkstrategie en je de juiste aansluiting kan creëren met je doelgroep. Door middel van voorbeelden en simpele handvatten toont ze hoe dit in jouw organisatie toegepast kan worden.
Brian Fitzsimmons on the Business Strategy and Content Flywheel of Barstool S...Neil Horowitz
On episode 272 of the Digital and Social Media Sports Podcast, Neil chatted with Brian Fitzsimmons, Director of Licensing and Business Development for Barstool Sports.
What follows is a collection of snippets from the podcast. To hear the full interview and more, check out the podcast on all podcast platforms and at www.dsmsports.net
IMPACT Silver is a pure silver zinc producer with over $260 million in revenue since 2008 and a large 100% owned 210km Mexico land package - 2024 catalysts includes new 14% grade zinc Plomosas mine and 20,000m of fully funded exploration drilling.
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2. Chapter 10 Chapter 11 Chapter 12
Some Lessons
from Capital
Markets
History
Risk and
Return
Cost of Capital
10-2
3. Learn how to calculate the return on an
investment
Understand the historical returns on various types
of investments
Introduction to the risk and return relationship
Overall concept
Understand the historical risks on various types of
investments
10-3
5. Total Dollar
Return
The return on an
investment
measured in $
$ Return = Dividends + Capital Gains
Capital Gains = Price Received - Price Paid
10-5
6. You invest in a stock with a share price of $25
After one year, the stock price per share is $35
Each share paid a $2 dividend
What was your dollar return after one year?
A. $2
B. $10
C. $12
D. $35
E. $37
10-6
7. You invest in a stock with a share price of $25
After one year, the stock price per share is $35
Each share paid a $2 dividend
What was your dollar return after one year?
$ Return = Dividends + Capital Gains
= $2 + ($35-$25)
= $2 + $10
= $12
10-7
8. Total % Return
The return on an
investment measured
as a percentage of the
original investment
% Return =
$ Return
$ Invested
10-8
9. You invest in a stock with a share price of $25
After one year, the stock price per share is $35
Each share paid a $2 dividend
What was your % return after one year?
A. 8%
B. 40%
C. 48%
D. 34.3%
E. 5.7%
10-9
10. Dividend Yield
Capital Gains
Yield
Dt+1 Pt
Pt+1 - Pt
Pt
D = Dividend
P = Price of Stock
t = time 0
% Return = Dividend Yield +
Capital Gains
Yield
=
Dt+1 + Pt+1 - Pt
Pt 10-10
11. You invest in a stock with a share price of $25
After one year, the stock price per share is $35
Each share paid a $2 dividend
What was your % return after one year?
% Return = Dividend Yield +
Capital Gains
Yield
=
Dt+1
Pt
+
Pt+1 - Pt
Pt =
$2
$25 +
($35-$25)
$25
= 8% + 40% = 48%
10-11
14. Historical Average
Return
=
Sum of Yearly Returns
# of Years
Historical Average
Return
=
10.77
89 Years
Sum of the 89
years of returns
per Table 10-1
(for Large Stocks)
= 12.1% per year
10-14
15. Investment Average Return
Large Stocks 12.1%
Small Stocks 16.7%
Long-Term Corporate Bonds 6.4%
Long-Term Government Bonds 6.1%
U.S. Treasury Bills 3.5%
Inflation 3.0%
10-15
19. Why did you classify the investments
in this manner from a risk standpoint?
Startup vs. established company
Dividend paying vs. not paying dividends
Volatility of returns
Historical track record
Level of certainty on the returns
10-19
20. Is there an
investment that
has no risk?
Yes!
U.S. Treasury Bills
Note: While there is a remote possibility there could
be risk with U.S. Treasury Bills, it is considered to be so
small we consider it risk-free.
10-20
21. Why are U.S. government Treasury
bills considered risk-free?
Short time to maturity
Taxes can be raised to pay all of the
government bills
Government can “print” money
10-21
22. Risk Premium
The excess return
required from an
investment in a risky
asset over that required
from a risk-free
investment
The risk premium can also be considered
as the reward for bearing risk.
10-22
23. If the US Treasury bills have an average return of
3.5% and large stocks have an average return of
12.1%, what is the risk premium for large stocks?
A. 12.1%
B. 15.6%
C. 8.6%
D. Need more information
10-23
24. All investments, other than a risk-
free investment, will have a risk
premium
10-24
25. Lesson #1
Risky assets, on
average, earn a risk
premium
This is the reward
for bearing risk
10-25
26. What determines the relative sizes of
the risk premium for the different
assets?
This question is the heart of modern
finance and the focus of next chapter
Part of the answer can be found by
looking at the historical variability of the
returns of different investments
10-26
27. Risk is measured by the dispersion,
spread, or volatility of returns
10-27
28. Both Investment A and Investment B deliver
an average of 5% return over 4 years.
Which one is more risky? Why?
Investment A
Annual Returns
Investment B
Annual Returns
Year 1 6% 15%
Year 2 4% -10%
Year 3 3% 20%
Year 4 7% -5%
Average Annual
Return
5% 5%
10-28
29. To understanding risk, it is critical to
understand both of the following
when it comes to returns on
investments:
Average
Returns
Volatility of
Returns
10-29
30. Risk is measured by the dispersion,
spread, or volatility of returns
10-30
31. Since volatility of returns is a key risk
driver, we can better quantify risk by
calculating volatility. There are statistical
tools to do just this:
Variance
Standard
Deviation
•
•
•
Common measure of
return dispersion
Also called variability
VAR(R) or σ2
•
•
•
•
Square root of the variance
Sometimes called volatility
Same “units” as the average
SD(R) or σ
10-31
32. The statistical tools for historical
returns:
Return variance: (“T" =number of
returns)
T
2
R R
i
VAR(R) = σ2 = i=1
T 1
Standard deviation
SD(R) = σ = VAR(R)
Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-32
( )
33. Average: 11.48 Variance: 859.19
VAR(R) = σ
2
=
T
i=1
(R
T
R
i
1
2
Standard Deviation: 29.31
Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
10-33
(1) (2) (3) (4) (5)
Year
Average
Return Return:
Difference:
(2) - (3)
Squared:
(4) x (4)
1926
1927
1928
1929
1930
11.14 11.48
37.13 11.48
43.31 11.48
-8.91 11.48
-25.26 11.48
-0.34
25.65
31.83
-20.39
-36.74
0.12
657.82
1013.02
415.83
1349.97
Sum: 57.41 Sum: 3436.77
)
36. Normal distribution:
A symmetric frequency distribution
The “bell-shaped curve”
Completely described by the mean and
variance
Historical returns on securities
roughly approximate a normal
distribution
10-36
37. An observation on a normally distributed
random variable has a:
• 68% chance of being with +/- one
standard deviation of the mean
• 95% chance of being within +/- two
standard deviations of the mean
• >99% chance of being within +/- three
standard deviations of the mean
Illustrated returns are based on the historical return and
standard deviation for a portfolio of large common stocks.
Average return = 12.1%; Standard Deviation = 20.1%
Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-37
38. From 1926 to 2014, long-term corporate bonds
had an average return of 6.4% with a standard
deviation of 8.4%. What range of returns would you
expect to see 68% of the time?
A. -14.8% to +14.8%
B. -10.4% to +23.2%
C. -2.0% to 14.8%
D. -8.4% to 8.4%
10-38
39. From 1926 to 2014, long-term corporate bonds had
an average return of 6.4% with a standard deviation of
8.4%. What range of returns would you expect to see
68% of the time?
Range of returns = Mean +/- 1 Standard Deviation
= 6.4% +/- 8.4%
= -2.0% to 14.8%
Answer is C
10-39
40. Lesson #2
The greater the
potential reward, the
greater the risk
On average, bearing
risk is rewarded
But, in a given year,
there is a significant
chance of a large
change in value
10-40
41. Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-41
42. Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-42
43. Your 75 year-old grandparents ask you for advice on how
they should invest their assets. What do you think is the
best recommendation of the following choices?
A. 100% Treasury bonds
B. 100% corporate bonds
C. 100% stocks
D. 50% stocks and 50% corporate bonds
E. 1/3 stocks; 1/3 corporate bonds; 1/3 Treasury bonds
10-43
44. You are committed to contributing the maximum allowed
to your 401(k) plan once you begin work upon
graduation. What do you think is the best way to invest
these funds of the following choices?
A. 100% Treasury bonds
B. 100% corporate bonds
C. 100% stocks
D. 50% stocks and 50% corporate bonds
E. 1/3 stocks; 1/3 corporate bonds; 1/3 Treasury bonds
10-44
45. You want to save for a down payment on a house
purchase to be made in the next 3-5 years. What do you
think is the best way to invest these funds of the
following choices?
A. 100% Treasury bonds
B. 100% corporate bonds
C. 100% stocks
D. 50% stocks and 50% corporate bonds
E. 1/3 stocks; 1/3 corporate bonds; 1/3 Treasury bonds
10-45
47. What was the average annual return
for this investment over 2 years?
A. 75%
B. 25%
C. 0%
D. None of the above
10-47
48. Year 1
Year 2
Cumulative
$ Return
-$50
+$50
% Return
-50%
+100%
Average =
=
-50%+100%
2
25%
Geometric
Average
Arithmetic
Average
10-48
$0 0%
49. Arithmetic
Average
Return earned in an average
period over multiple periods
Answers the question, “What were
your returns in an average year
over a particular period?”
Geometric
Average
Average compound return per
period over multiple periods
Answers the question, “What has
been your average compound
return per year over a particular
period?”
Geometric Average < Arithmetic Average
(unless all returns are equal)
10-49
50. GAR = [(1 + R
1
) (1 + R2 ) ... (1 + RN)
1/T
1 /T 1
Where:
Ri = return in each period
T = number of periods
Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-50
]
51. Arithmetic
Average Return
= 11.48%
(1.4870)^(1/5):
Geometric Average Return:
1.0826
8.26%
10-51
Year
Percent
Return
One Plus Compounded
Return Return:
1926
1927
1928
1929
1930
11.14
37.13
43.31
-8.91
-25.26
1.1114
1.3713
1.4331
0.9109
0.7474
1.1114
1.5241
2.1841
1.9895
1.4870
52. Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-52
53. If you invested $1.00 (one dollar) 89 years ago and
thought you were going to earn a return of 16.7%,
but only earned a return of 12.2%, about how much
less money did you earn compared to what you
thought you would have earned?
A. $900
B. $9,000
C. $90,000
D. $900,000
E. $9,000,000
10-53
55. Real rate of interest
= Change in purchasing power
Nominal rate of interest
= Quoted rate of interest
= Change in purchasing power and inflation
The nominal rate of interest includes our
desired real rate of return plus an
adjustment for expected inflation
Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education. 10-55
56. The Fisher Effect defines the relationship
between real rates, nominal rates and
inflation
( 1 + R ) = ( 1 + r)(1 + h )
R= nominal rate (Quoted rate)
r= real rate
h= expectedinflation rate
Approximation: R= r+ h
Copyright (c) 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-
Hill Education. 10-56
57. If we require a 10% real return and we
expect inflation to be 8%, what is the
nominal rate?
( 1 + R ) = ( 1 + r)(1 + h )
R = (1.1)(1.08) – 1 = .188 = 18.8%
Approximation: R = 10% + 8% = 18%
10-57
58. On a particular risky investment, investors require an
excess return of 7 percent in addition to the risk-
free rate of 4 percent. What is this excess return
called?
A. Inflation premium
B. Required return
C. Real return
D. Average return
E. Risk premium
10-58
59. One year ago, you purchased 600 shares of a stock.
This morning you sold those shares and realized a total
return of 3.1 percent. Given this information, you know
for sure the:
A. Stock price increased by 3.1 percent over the last year.
B. Stock increased in value over the past year.
C. Stock paid a dividend.
D. Dividend yield is greater than zero.
E. Sum of the dividend yield and the capital gains yield is
3.1 percent.
10-59
60. Assuming a normal distribution of a data set,
what percentage of all data observations will
be captured +/- one standard deviation from
the mean?
Same question but +/- two standard deviations
from the mean?
Same question but +/- three standard deviations
from the mean?
What is the difference between the arithmetic
and geometric average?
10-60