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Lecture 28.02.2013.docx

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Administrative Studies
ADMS 4501
Lois King

Lecture DCF: - The discount rate should match with the risk of the cash flow in the numerator. WHEN DO WE USE RELATIVE VALUATION TECHNIQUES - When comparing companies in the same industry - Valuations ( price earning ratio, price cash flow ratio, price to sales ratio and price to book value ratio) fluctuates during market high and lows. a. Price earning TTM ( trailing twelve months) is based on the previous months. And its different from p0/ E1is a forecasted P/E b. EPS : i. DIVs ii. Retain it. So that Payout ratio + retention ratio ( or plow back ratio) = 100% EPS And so we can use this idea to find g ( growth rate) : ROE x Retention ratio. D 1 p 0 𝐸 1 = 𝐸 1 k−g Defensive companies: - Low beta Cyclical companies: Speculative companies: - Low chances of making huge money and high chances of making low money - Like start up companies Value vs growth investing A buy / hold/ sell rating by analyst BOND MARKET - Currencies market - Commodities - Bonds 100T ( 30% USA) - Equities 32T Three biggest issuers in USA - Government i. Federal ii. State iii. Municipal - Corporations - MBS -> derivatives - Other institutions – life insurers Purchases: - Commerc
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