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- Lesson 13 - Equity Valuation
- Book Value: Net worth of common equity according to a firm’s balance sheet
- Liquidation value: Net amount realized by selling assets of firm and paying off debt
- Replacement cost: Cost to replace firm’s assets
- Tobin’s q: Ratio of firm’s market value to replacement cost
- 13.2 4/30 intrinsic value versus market price 6/30
- DDM - Formula for intrinsic value of firm equal to present value of all expected future dividends
- Constant growth DDM: form of DDM that assumes constant growth [EQUATION]
- 9/30 plowback ratio and PVGO
- 11/30 Earning per share 12/30
- 14/30 E/P shit
- Price-to-sales: For start-ups with no earnings
- Price-to-book: Indicates how aggressively market values firm
- Price-to-cash-flow: Cash flow less affected by accounting decisions than earnings
- Investors employ hierarchy of valuation
- Real estate, plant, equipment
- Economic profit on assets in place
- Growth opportunities
- Lesson 15 - Options Markets
- Options | Futures
- Call (buy) | Long (buy)
- Put (sell) | short (sell)
- In the Money - Exercise would generate positive cash flow
- Out of the Money - Exercise would generate negative cash flow
- At the Money - Exercise price equals asset price
- Most trading occurs on organized exchanges
- Standardized
- Option Clearing Corporation - Jointly owned by exchanges | Requires option writers to post margin
- 15.2 13/35 strategies
- Protective put - Asset combined with put option that guarantees minimum proceeds equal to put’s exercise price
- Covered call - Writing call on asset together with buying asset
- Straddle - Combination of call and put, each with same exercise price and expiration date
- Spread - Combination of two or more call options/put options on same asset with differing exercise prices/times to expiration
- Collar - Options strategy that brackets value of portfolio between two bonds
- callable Bonds - Issued with coupon rate higher than on straight debt (includes protetion period)
- warrants - Option issued by firm to purchase shares of firm’s stock
- Collateralized Loans - No recourse beyond right to collateral
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