Overview
Structure of the Lecture
Chapter 1: Introduction / Principles of Corporate Finance
Chapter 2: Portfolio Theory
Chapter 3: Capital Asset Pricing Model
Chapter 4: Cost of Capital and Capital Structure
Chapter 5: Company Valuation (DCF‐Methods)
Slide Set #1
172
Corporate Finance ‐ Summer 2023
,Overview
Structure of this class
Investor Firm
Individual decision making Capital structure
Expected utility Choice of debt‐equity‐ratio
Portfolio optimization
Firm valuation
Markowitz portfolio selection Discounted Cash Flow
Financial Market
Capital Asset Pricing Model
expected return is dependent on systematic risk and market risk premium
expected returns of investors are cost of capital for firms
Slide Set #1
173
Corporate Finance ‐ Summer 2023
,Chapter 3: Capital Asset Pricing Model
Idea
The Capital Asset Pricing Model
Question: What security prices arise in a market equilibrium if all
investors optimize in the previously discussed way?
William F. Sharpe
So far (in chap. 2):
Given
of the returns
Prices P0 of Returns of Opt. portfolios
the securities of the returns
the securities of the investors
of the returns
Given distributions
of the terminal
prices P1
Slide Set #1
174
Corporate Finance ‐ Summer 2023
, Chapter 3: Capital Asset Pricing Model
Interaction of the Relevant Components
Preferences of Initial endowment
the investors, of securities
risk attitude ‐ “market portfolio“
Optimal portfolios Supply
of the investors and demand
for securities
Prices of
securities
Slide Set #1
175
Corporate Finance ‐ Summer 2023
Structure of the Lecture
Chapter 1: Introduction / Principles of Corporate Finance
Chapter 2: Portfolio Theory
Chapter 3: Capital Asset Pricing Model
Chapter 4: Cost of Capital and Capital Structure
Chapter 5: Company Valuation (DCF‐Methods)
Slide Set #1
172
Corporate Finance ‐ Summer 2023
,Overview
Structure of this class
Investor Firm
Individual decision making Capital structure
Expected utility Choice of debt‐equity‐ratio
Portfolio optimization
Firm valuation
Markowitz portfolio selection Discounted Cash Flow
Financial Market
Capital Asset Pricing Model
expected return is dependent on systematic risk and market risk premium
expected returns of investors are cost of capital for firms
Slide Set #1
173
Corporate Finance ‐ Summer 2023
,Chapter 3: Capital Asset Pricing Model
Idea
The Capital Asset Pricing Model
Question: What security prices arise in a market equilibrium if all
investors optimize in the previously discussed way?
William F. Sharpe
So far (in chap. 2):
Given
of the returns
Prices P0 of Returns of Opt. portfolios
the securities of the returns
the securities of the investors
of the returns
Given distributions
of the terminal
prices P1
Slide Set #1
174
Corporate Finance ‐ Summer 2023
, Chapter 3: Capital Asset Pricing Model
Interaction of the Relevant Components
Preferences of Initial endowment
the investors, of securities
risk attitude ‐ “market portfolio“
Optimal portfolios Supply
of the investors and demand
for securities
Prices of
securities
Slide Set #1
175
Corporate Finance ‐ Summer 2023
