BU111 Lecture Notes - Lecture 5: Capital Gain
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BU111 Full Course Notes
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Concept of yield: percentage return on any investment, helps us to compare investments, yield = what you made/what you paid = interest + capital gain/what you paid = x% Interest = coupon rate x face value: capital gain = face value - purchase price. Approximate yield to maturity: notes, assumes you will hold the bond until maturity, need to calculate "what you made" on an annual basis, doesn"t consider time value of money which is why it is "approximate" Types of investments - stocks: represents equity/capital for issuing company, characteristics, voting rights, no fixed term, variable return, discretionary payments (dividends, risk. Promised but not legally required dividends as % of par value; granted in exchange for silence. What impacts stock price: present value of expected future cash flows, anything that affects above affects demand and supply of stock, what affects expected future returns, general environment - bull vs. bear markets, economy, interest (especially preferred), pest.
