Calculate the current yield (dividend yield) of stock
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Current yield = dividend / market price of stock
Explain the three different types of market efficiency and its implications to abnormal
returns.
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o The weak form -all past prices and data are fully reflected in prices,
technical analysis is of no use
o The semistrong form - all publicly available information is fully reflected
in prices, fundamental analysis is of no use
, o The strong form - all information is fully reflected in prices, insider
information is of no use
Explain the term structure of interest rates
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o Also known as the yield curve. It plots the yields of similar quality bonds
against their maturities.
• Normal curve - short term yields are lower than long term yields
• Inverted - if short term yields are higher than long term yields (can be a
sign of a recession)
• Flat - there is no variation between short and long term yields (can also
be a predictor of economic transition
Be able to select between projects of different life length and different size (initial
outlay)
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NPV is the preferred method to base the decision on
Use the DuPont system of analysis
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o Used to analyze where movements in ROE are coming from
o ROE = Profit margin (profit/sales) x Total asset turnover
(sales/assets)xEquity multiplier (assets/equity)
It is believed that measuring assets at gross book value removes the
, incentive to avoid investing in new assets. New asset avoidance can occur
as financial accounting depreciation methods artificially produce lower
ROEs in the initial years that an asset is placed into service. If ROE is
unsatisfactory, the DuPont analysis helps locate the part of the business
that is underperforming.
Explain bond duration
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o The weighted average period of time before the price of a bond is repaid
by its cash flows. Zero-coupon bond duration=its time to maturity.
o Importance is that it predicts how sharply the market price of a bond will
change as a result of changes in interest rates(or other factors of volatility)
Be able to develop a project's cash flows
Give this one a try later!
Sales revenue (units*price per unit)
- Variable costs (units*cost per unit)
-Nonvariable costs (exluding depreciation)
-Depreciation
=EBIT
-Taxes on operating profit
=NOPAT
+Depreciation
-Change in working capital
=project net cash flows for year
Give this one a try later!
Current yield = dividend / market price of stock
Explain the three different types of market efficiency and its implications to abnormal
returns.
Give this one a try later!
o The weak form -all past prices and data are fully reflected in prices,
technical analysis is of no use
o The semistrong form - all publicly available information is fully reflected
in prices, fundamental analysis is of no use
, o The strong form - all information is fully reflected in prices, insider
information is of no use
Explain the term structure of interest rates
Give this one a try later!
o Also known as the yield curve. It plots the yields of similar quality bonds
against their maturities.
• Normal curve - short term yields are lower than long term yields
• Inverted - if short term yields are higher than long term yields (can be a
sign of a recession)
• Flat - there is no variation between short and long term yields (can also
be a predictor of economic transition
Be able to select between projects of different life length and different size (initial
outlay)
Give this one a try later!
NPV is the preferred method to base the decision on
Use the DuPont system of analysis
Give this one a try later!
o Used to analyze where movements in ROE are coming from
o ROE = Profit margin (profit/sales) x Total asset turnover
(sales/assets)xEquity multiplier (assets/equity)
It is believed that measuring assets at gross book value removes the
, incentive to avoid investing in new assets. New asset avoidance can occur
as financial accounting depreciation methods artificially produce lower
ROEs in the initial years that an asset is placed into service. If ROE is
unsatisfactory, the DuPont analysis helps locate the part of the business
that is underperforming.
Explain bond duration
Give this one a try later!
o The weighted average period of time before the price of a bond is repaid
by its cash flows. Zero-coupon bond duration=its time to maturity.
o Importance is that it predicts how sharply the market price of a bond will
change as a result of changes in interest rates(or other factors of volatility)
Be able to develop a project's cash flows
Give this one a try later!
Sales revenue (units*price per unit)
- Variable costs (units*cost per unit)
-Nonvariable costs (exluding depreciation)
-Depreciation
=EBIT
-Taxes on operating profit
=NOPAT
+Depreciation
-Change in working capital
=project net cash flows for year
