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Applied Financial Management: Lecture Notes for Departments of Management, Assignments of Investment Management and Portfolio Theory

Lecture notes on Applied Financial Management from the Department of Management. Topics covered include Discounted Cash Flow, Perpetuities and Annuities, Valuing Bonds, Risk and Return, and Capital Structure. Formulas and calculations are included.

What you will learn

  • What is the Dividend Discount Model of Common Stock?
  • What is the formula for measuring risk using variance?
  • What is the concept of efficient portfolios in finance?
  • How is the value of a bond calculated?
  • What is the formula for calculating the present value of a growing perpetuity?

Typology: Assignments

2019/2020

Uploaded on 12/12/2020

daniel-sanchez-rt5
daniel-sanchez-rt5 🇬🇧

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Department of Management
Applied Financial Management
Revision Guideline
17/18
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Download Applied Financial Management: Lecture Notes for Departments of Management and more Assignments Investment Management and Portfolio Theory in PDF only on Docsity!

Department of Management

Applied Financial Management

Revision Guideline

Lecture 1 Basic Concept

Discounted cash flow formula Present Value = + + + +……+ Net Present Value=C 0 +

Lecture 1 Basic Concept

Value a bond = PV(annuity of coupon payments)+PV(final payment of principal) = + + + ……+ Dividend Discount Model of Common Stock: = + + ... + = +

Lecture 2 Risk and Return

Measuring Risk: Variance () = the expected value of (– rm)^2 Diversification strategy: Reducing risk by spreading the portfolio across many investments.

Lecture 2 Risk and Return

Efficient Frontier: move up and left Sharpe Ratio = Investors track Sharpe ratios to measure the risk-adjusted performance of investment managers.

Lecture 3 CAPM and Cost of Capital

Expected risk premium on stock = beta * expected risk premium on market ß ()

Lecture 3 CAPM and Cost of Capital

  • (^) Arbitrage Pricing Theory: Factors: Macroeconomics influences; Noise: unique to that company

Lecture 4 NPV & Other Investment Criteria

Lecture 5 & 6 Capital Structure

  • (^) Trade-off theory Financial Distress Costs
  • (^) Pecking Order
  • (^) Signaling theory
  • (^) Agency theory

Lecture 7 Payout Policy

Dividend Theories:

  • (^) Miller and Modigliani (MM) (1961)
  • (^) Bird-in- the-hand theory
  • (^) Tax preference theory
  • (^) The signaling theory
  • (^) Agency theory

Lecture 8 Efficient Market

  • (^) Weak Form Efficiency --Market prices reflect all historical information
  • (^) Semi-Strong Form Efficiency --Market prices reflect all publicly available information
  • (^) Strong Form Efficiency --Market prices reflect all information, both public and private

Good Luck!