Week 2
Module 1
1.1
- Understand methods of estimating a company's value
- Market cap
- Future dividends
- Book value
- Company that can produce $1 per year example (similar to Magic Formula lesson of the bubble gum kid)
- What is the Current Value of a Future $1?
- "If you give me money now, I promise I'll give you money in a year." How much should you expect?
- Look at alternatives:
- How much does bank give you?
- Intrinsic value
- "future income generated by the asset, and discounting it to the present value."
sum(dividend * gamma ^ i) = dividend * 1/(1-gamma)
1.2
- One way of evaluating a company: information and news
- News informs traders about the company's capacity to make money in the future
- Local and Global Affects -- kinda missed this part
Opinion
- Interesting example of an Event Study based from a Journal of Economic Literature
1.3
- What's a company worth?
- Fundamental analysis
- Book value + future return (aka instrinsic value)
- What's a company worth?
- Why not ask the market?
- value = # shares outstanding * price
- Efficient market hypothesis
Module 2
2.1
- CAPM
- introduced in 1966
- lead the 'index investing' movement
- assumptions
- return on stock has two components
- systematic (the market)
- residual
- expected value of residual = 0
- market return:
- risk free rate of return +
- excess return
- Another way to understand CAPM is via this series of videos: http://www.youtube.com/watch?v=LWsEJYPSw0k
2.2
- Recap of CAPM -- very hard to understand