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BU473 (2)
Ning Tang (2)
Lecture

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Department
Business
Course
BU473
Professor
Ning Tang
Semester
Winter

Description
Goals of investment: Safety – Income - Growth of capital Def’n: DRIP: can reinvest dividends to buy more shares at no add’l cost Expected return = anticipated return by some investors = risk-free rate (RF) + Protection agencies: OSC, CIPF, IIROC expected risk premium Stock purchases are cleared by CDS Investment process: decision to invest - choice of investment: risk averseness, Initial Margin: 30% CA, 50% USA…Maintenance: 30% both equity in account value of stock - loan set up investment goals, risk-return analysis – transaction – monitor performance Margin%   s/o P  loan  ie.30% Important considerations when investing: Nothing is certain – Globalization - value of stock value of stock s/o P Tech advances (Old Econ vs. New Econ) - institutional investors (vs ind investors) - Leverage is by 1/margin requirement Market efficiency - Corporate Governance Margin Ex.: price of stock drops, but amount of loan stays constant, it’s your equity Direct Investing: Non-marketable – money mkt – capital mkt – derivatives mkt that drops with the MV, which drops your margin…how far can price fall before Value of Stocks -Liability Indirect Investing: Investment funds (open and closed end) margin call?   Maintaince Margin Def’n: Options – limited liability….Futures – unlimited liability Value of Stocks Def’n: Investment Taxation: Interest  taxed as ordinary income… Dividends  Shortsell Ex.: the total collateral is the value of the stock owed + margin…when gross up and then apply tax credit… Cap Gains  only 50% is taxable, loss can be stock price goes up, stock owed goes up meaning the net equity (your original carried backwards 3 years and forwards indefinitely margin) goes down (margin = equity/stock owed) … margin call price  totalcollateral -loan X  s/o* P Def’n: Unit Inv. Trust: passive investment; unmanaged, designed to be bought Margin%   Valuation Approaches: Book, Acquisition and held, goal is capital preservation...minimum operating costs… investment value of stock s/o* P funds can be unit, open-end, or closed-end (liquidation and replacementTobin’s Q: when ratio is near 1, company is trading Def’n: Red Herring = preliminary prospectus Blue Skied = gain approval close to replacement cost), Intrinsic (DDM, Earnings, FCF), Relative valuation Dividend Yield: income component of return  Div/Price  D1/P0 DDM: no-growth model: P = D0/k … constant growth: P = D1/(k –g) Payout Ratio: % of earnings paid in cash to stockholders  Div/Earnings OR 1-b Estimate guse historicals OR g = ROE×b…keeping b constant, g = earnings P/E Ratio: earnings multiplier  Price/EPS 1,000 P 365 growth rate… b = 1 – D 0/EPS 0... to find PVGO find b  g  EPS1  k Bond equivalent yield (BEY) -------------- rBEY   Note: b = retention ratio/clawback ratio/plowback ratio Bank discount yield (BDY)(used in USA) P days Est kuse CAPM:k = r + bfta(k – rm)...fot give? Mkt Risk Prm = 5.5%, Rf7.5% 1 r  1,000 P  360 r  365r BDY g = expected cap gains yield k = div yCurrentapyear Dividend no. of years BDY 1,000 days BEY 360r days Geometric Annual growth rate (g)     1
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