The following notes were captured during a recent student visit to my office. I hope this may be of some help as you try to understand the material.
Author Archives: efficientminds
More troubles at HP
Do you remember the HP CEO pay vs. stock price performance extra credit assignment from a month or so ago? Looks like the poor stock performance continues. Let’s see if the high CEO pay continues as well.
Study: Fraud growing in scientific research papers
Latest patent round to Samsung vs. Apple – SFGate
DT in talks to merge T-Mobile USA with MetroPCS
FIN101 What did we learn today?
Stock valuation
- Three methods to obtain the price per share:
- Constant growth dividend discount model (CGM): P0 = D1/(Rs-g)
- Discounted free cash flow model (DCF): V0 = FCF1/(WACC-g) plus several other steps to arrive at P0
- Market multiple analysis: Pibm = Eibm * (P/E industry); Vibm = EBITDAibm * (V/EBITDA industry)
- Preferred stock: a perpetuity Pps = Dps / Rps
Risk and return
- Sum vs. product notation
- Differences between historical return (geometric mean), expected return, required return
- Read the risk & return presentation
Bond valuation, problem 16, Meade Corporation
This one is a bit tricky. However, the same problem with different numbers is on page 125 of Brigham and Daves (2010). Current yield is defined as the coupon payment dvidided by the current price. The capital gains yield can be obtained two different ways.
- Compute the bond price so you can compute the current yield. Once you have the the current yield and yield to maturity you can utilize the expression: YTM = CY + CGY where CGY is the capital gains yield.
- Compute the bond price one year from now. To do that, reduce N by one year (or two semi-annual periods in this case) and re-calculate PV. Then the change of PV from the old N to the one-year less N is your CGY.
U.S. Consumer Spending Stalls After Adjusting for Inflation – Businessweek
We talked about inflation, real rates, and nominal rates in class this week. This article is an example.
Bank of America to Pay $2.43 Billion to Settle Suit Over Merrill Deal – NYTimes.com
What I liked about thus article:
1. The comments at the end of the article. For example:
These banks are not too big to fail. They are failing and they are too big.
2. BofA’s explanation of the settlement: too reduce uncertainty.
I wonder what happened to the executives responsible? Also, I wonder if our government is part of the past shareholders that are receiving the settlement, the current shareholders that are paying the settlement, both, or neither? Answer that, cite your references, and receive up to 10 extra credit points!
Efficient Minds™ 