Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
4 Cards in this Set
- Front
- Back
|
B Assumption of CAPM and evaluate |
|
|
|
B Difference, factors, importance, eg firm of systematic and non systematic risk |
non systematic: 1. diversifiable,2 specific to that firm 2. insolvency risk, financial risk, business risk (lose big contract) Systematic: 1. non diversifiable, impact on all firms with varying degree 2. market risk, sensitivity to macro events (changes in r, infl, ER, purchasing power, mon pol), cost sensitivity, level of gearing 3. important: if CAPM holds, tell (1) E(r) for given risk (2) find mispriced asset based on beta (3) tell sys risk associated portfolio 4. low beta firm: matured market+relatively stable cash flow e.g. utility - National Grid High beta: financials - Prudential |
|
|
B Difference in CML and SML |
|
|
|
A. Different ways of valuation and evaluate
|
1. account info - pro: 2 con: 3 2. stock market value/p - market p: pro: 3 con: 3 - PE: pro: 1 con: 1 - quality: 1 - comparison: 1 3. DCF most popular - pro: (1) theoretically correct, straightforward, rational - cons: (1) require lots of info (2) sensitive to assumption a. value of ..... - persistent through time? b. ke - CAPM (2) not listed (3) large corporation diff geographically n product c. kd (1) listed (2) not listed (3) complex call provision, complex valuation to derivative instruments d. CF (1) no incentive for management to keep stable unlike dividend and earnings-->smooth |
