FIL 240 Lecture 9 Outline of Last Lecture I Inventory Turnover a Formula for inventory turnover b Just in time inventory II Asset Turnover a Example b Problem III Risk a Rule 1 b Ways to measure risk c Rule 2 d Stocks Outline of Current Lecture I Market Capitalization a Round lot definition b PE Ratio c Dividend Yield II Beta a Market Portfolio b Treasury Bills c Behavior of beta d Negativity e Flight to Quality III Present Value a Equation These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute IV CAPM a Expected market premium over risk free equation Current Lecture Metrics of Risk I II III IV Market Capitalization price per share number of shares a Round lot 100 shares b PE Ratio Price per share Earnings per share i If the PE ratio rises the company will make a lot of money off the stock ii The PE ratio is a measure of risk c Dividend Yield return on investment for stock i Dividends per share Price per share Beta s measures the non diversifiable risk of a stock relative to the market portfolio a The beta of the market portfolio is 1 b Treasury bills have a beta of 0 because they have relatively no risk no volatility relative to the market portfolio c Can be infinitely high d Can be negative some securities stocks usually gold stocks run against the market e Flight to Quality when times get worse the quality of what you re buying decreases From stocks to bonds from bonds to gold Present Value a PV FV 1 1 Ks b PV 1000 1 1 05 c PV 952 38 CAPM Capital Asset Pricing Model discount rate Ks risk free rate Kf beta s expected return to perfect market portfolio Km risk free rate Kf a Expected market premium over risk free Km Kf
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