www'TeachMeFinance'com

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www.TeachMeFinance.com
Probability Distribution Standard
Deviation CAPM Security Market Line
Time Value Of Money Annuities Perpetuities Kinds
Of Interest Rates Future Value Of An Uneven
Cashflow
Bond Valuation Stock Valuation Cost Of
Capital Capital Budgeting
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ANNUITYA bunch of equal payments made regularly,
like every month or every week.

• Example
• You win the lottery.
• 50000 annual in 22 years or 1000000 in a lump
  sum.
• What is preferable?

• Financial Calculator
• Annuity Table

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Ks Krf B ( Km - Krf)
CAPM - looks at risk and rates of return and
compares them to the overall stock market
Ks (required) Rate of return Krf riskfree
rate B Beta value Km rate of return stock
market

• Example
• What is the required rate of return on an
  investment in a company whos B2,5 ?
• Krf3,8 Km14,5
• Ks3,82,5(14,5-3,8)30,55

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Value of common stockThe Constant Growth
Formula Assumes that a company grows with a
constant rate forever - Impossible !

• Po D 1 / ( Ks - G )
• Po Price
• D1 The next dividend. D0 the last dividend
  D1 D0 (1 G)
• Ks Rate of Return
• G Growth Rate

• Example D0 1, G 5, Ks 10
• D1 1.00 ( 1 .05) gtgt D1 1.05
• Po 1.05 / (10 - 5) gtgt Po 1.05 / 5
  gtgt Po 21.00

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Summary

• Individual Financial rookies
• Scene Educational / private
• Act Simple calculations decisions
• Agent / Tool Formulas descriptions
• Pupose Selling Complementing books
• Thank you!