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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.
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Department of Management
Discounted cash flow formula Present Value = + + + +……+ Net Present Value=C 0 +
Value a bond = PV(annuity of coupon payments)+PV(final payment of principal) = + + + ……+ Dividend Discount Model of Common Stock: = + + ... + = +
Measuring Risk: Variance () = the expected value of (– rm)^2 Diversification strategy: Reducing risk by spreading the portfolio across many investments.
Efficient Frontier: move up and left Sharpe Ratio = Investors track Sharpe ratios to measure the risk-adjusted performance of investment managers.
Expected risk premium on stock = beta * expected risk premium on market ß ()
Lecture 3 CAPM and Cost of Capital
Lecture 8 Efficient Market