Samenvatting Net Present Value

Net Present Value

The Net Present Value has three key features:
 The time value of money  a dollar earned today is worth more than
a dollar earned tomorrow
 The NPV depends on forecasted cash flows
 The NPV is all measures in today’s currency, so you can add and
compare
 (Future returns are unpredictable)


Risk is best judged via:
 Portfolio context
 Diversification
 Standard deviation
 Beta


Volatility  volatility refers to the amount of uncertainty or risk about the
size of changes in a security's value. A higher volatility means that a
security's value can potentially be spread out over a larger range of
values. This means that the price of the security can change dramatically
over a short time period in either direction. A lower volatility means that a
security's value does not fluctuate dramatically, but changes in value at a
steady pace over a period of time.


Beta  measures the amount that investors expect the security or
portfolio to change for each additional 1% change in the market. Beta is
calculated using regression analysis, and you can think of beta as the
tendency of a security's returns to respond to swings in the market. A beta
of 1 indicates that the security's price will move with the market. A beta of
less than 1 means that the security will be less volatile than the market. A
beta of greater than 1 indicates that the security's price will be more
volatile than the market. For example, if a stock's beta is 1.2, it's
theoretically 20% more volatile than the market.