Ch27_The_Basic_Tools_of_Finance_金融基本工具

PrincipleofEconomics,MacroeconomicsBydersen.guo,CourseOutline,Chapter27TheBasicToolsofFinancePV(presentvalue)andFV(futurevalue)TheeffectsofcompoundgrowthHowrisk-aversepeoplereducetheriskHowassetpricesaredetermined,Finance,Financeisthefieldthatstudieshowpeoplemakedecisionsregarding:1)Theallocationofresourcesovertime2)Thehandlingofrisk.,TheTimeValueofMoney,$100today$100tomorrow$100ayearoutHowtocomparemoneyindifferenttimes?Forexample:$100ayearoutand$110twoyearsout?Isaprojectwithainvestmentof$1,000,000todayandwithfuturepayoffsof$100,000inthefollowing15yearsprofitableornot?,PresentValue(PV),PresentValue:MeasuringthetimevalueofmoneyPresentvaluereferstotheamountofmoneytodaythatwouldbeneededtoproduce,usingacertaininterestrates,agivenfutureamountofmoney.,PresentValue(PV),PresentValue(PV),Inordertocomparevaluesatdifferentpointsintime,comparetheirpresentvalues.Example1Firmsundertakeinvestmentprojectsifthepresentvalueoftheprojectexceedsthecost.Example2,PresentValue&FutureValue,Ifristheinterestrate,thenanamountXtobereceivedinNyearshaspresentvalueof:PV=X/(1+r)NFutureValue(FV):Theamountofmoneyinthefuturethatanamountofmoneytodaywillyield,givenacertaininterestrates,Compounding&Ruleof70,Compounding:theinterestearnedremainsinthebankaccounttoearnadditionalinterestinthefuture.Ruleof70:Example:ifyousave$1,000inthebankandearnafixedinterestrateof5%,howlongitwilltakeforyoursavingtogrowto$2,000?,ManagingRisk,Apersonissaidtoberiskaverseifsheexhibitsadislikeofuncertainty.Mostpeopleareriskaverse.DislikebadthingshappeningtothemDislikebadthingsmorethancomparablegoodthings,Painsarealwaysmuchbitter,Diminishingmarginalutility,Howtoreducerisk?,3waystoreducerisk:BuyinsuranceDiversifyTrade-offbetweenriskandreturnReceivealowerreturnbyassumingalowerrisk,Insurance,Featureofinsurance:FeesRightsWhetheroptionisatypeofinsurance?Roleofinsurance:Caneliminaterisks?Orjusttospreadrisks?,Twotypesofproblems,Themarketsforinsurancesufferfromtwotypesofproblemsthatimpedetheirabilitytospreadrisk.Adverseselection:high-riskpersonismorelikelytoapplyforinsurancethanalowriskperson.Moralhazard:afterpeoplebuyinsurance,theyhavelessincentivetobecarefulabouttheirriskybehavior.,Adverseselection&Moralhazard,Diversification,Diversificationreferstothereductionofriskachievedbyreplacingasingleriskwithalargenumberofsmallerunrelatedrisks.“Dontputallyoureggsinonebasket.”,RiskTypes,SystematicRisk:Marketrisk,oraggregaterisktheriskthataffectsalleconomicactorsatonce,theuncertaintyassociatedwiththeentireeconomy.Idiosyncraticrisk:non-systematicrisktheriskthataffectsonlyasingleperson.theuncertaintyassociatedwithspecificcompanies.(firmspecificrisk),Diversification&Risks,Diversificationcannotremovemarketrisk.,Howtomeasurerisk?,Riskcanbemeasuredbythestandarddeviationofaportfoliosreturn.Standarddeviationmeasuresthevolatilityofavariable.Thehigherthestandarddeviationofaportfoliosreturn,theriskieritis.,Std.Deviation&EconomicCrisis,Trade-offbetweenRiskandReturn,Forrisk-aversepeople:higherreturntocompensatehigherriskWhendecidinginvestmentallocation:NosuchthingasFreeLunch:Higherreturn,higherrisk,ASSETVALUATION,Whatdeterminesprices?S&DorValue?PurposeofValuinganasset?,ASSETVALUATION,Threewaystodeterminethevalue:1.FundamentalAnalysis:definition?DCF:DiscountedCashFlowMethod2.RelativeValuationP/E,EBITDA/EV,P/B,P/S,etc3.OptionPricingModelBlack-ScholesModel,ValueVS.Price,IfValuePrice,undervaluedIfValuePrice,overvaluedIfValue=Price,fairlyvaluedDifferentassets,differentinvestmentmethod:longorshort,EfficientMarketsHypothesis,EMH:TheEMHisthetheorythatassetpricesreflectallpubliclyavailableinformationaboutthevalueofanasset.,EfficientMarketsHypothesis,Amarketisinformationallyefficientwhenitreflectsallavailableinformationinarationalway.Ifmarketsareefficient,theonlythinganinvestorcandoisbuyadiversifiedportfolio.,RandomWalkVS.PathDependence,RandomWalk:thepathofavariablewhosechangesareimpossibletopredictPathDependence:HistorymattersThewinnerskeepwinning,andtheloserskeeplosing(stockinvestment),MarketIrrationality,AccordingtoEMH,peoplebuyingandsellingstockrationallyprocessalloftheinformationtheyhaveaboutthestocksunderlyingvalue.Thereisalongtraditionsuggestingt