FIL 240 Lecture 9 Outline of Last Lecture I. Inventory Turnovera. Formula for inventory turnoverb. “Just in time” inventoryII. Asset Turnovera. Exampleb. ProblemIII. Riska. Rule #1b. Ways to measure riskc. Rule #2d. StocksOutline of Current LectureI. Market Capitalizationa. Round lot definitionb. PE Ratio c. Dividend YieldII. Betaa. Market Portfoliob. Treasury Billsc. Behavior of betad. Negativitye. Flight to QualityIII. Present Valuea. EquationThese 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. CAPMa. Expected market premium over risk free equationCurrent LectureMetrics of RiskI. Market Capitalization – price per share * number of sharesa. Round lot – 100 sharesb. PE Ratio – Price per share/Earnings per sharei. If the PE ratio rises, the company will make a lot of money off the stockii. The PE ratio is a measure of riskc. Dividend Yield – return on investment for stocki. Dividends per share/Price per shareII. Beta (βs) – measures the non-diversifiable risk of a stock relative to the market portfolioa. The beta of the market portfolio is 1b. Treasury bills have a beta of 0 because they have relatively no risk – no volatility relative to the market portfolioc. Can be infinitely high d. Can be negative – some securities, stocks; usually gold stocks – run against the markete. Flight to Quality – when times get worse, the quality of what you’re buying decreases. From stocks to bonds, from bonds to gold III. Present Valuea. PV = FV * 1/(1+Ks)b. PV = 1000 * 1/(1+.05)c. PV = $952.38IV. CAPM – Capital Asset Pricing Model: discount rate (Ks) = risk-free rate (Kf) + beta (βs) *(expected return to perfect market portfolio (Km) – risk-free rate (Kf))a. Expected market premium over risk-free = Km –
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