《金融学》（第二版） 课件 （英文） -Chapter9、10 Valuation of Common Stocks；Principles of Risk Managemen

Chapter9:

Valuationof CommonStocksObjectiveExplainequityevaluationusingdiscountingDividendpolicyandwealth1Chapter9Contents9.1Readingstocklistings9.2Thediscounteddividendmodel9.3Earningandinvestmentopportunity9.4Areconsiderationoftheprice/earningsmultipleapproach9.5Doesdividendpolicyaffectshareholderwealth?29.1ReadingStockListingsThefollowingnewspaperstocklistingisusuallyprintedasahorizontalstringofinformationThelistingisforIBM,whichistradedontheNewYorkStockExchange3ReadingStockListings4ReadingStockListingsHi=1231/8:Thehighestpricethestockhastradedatoverthelast52weeksLo=931/8:Thelowestpricethestockhastradedatoverthelast52weeksStock=IBM:Thestock’snameSym=IBM:Thestock’ssymbol5ReadingStockListingsDiv=4.84:Thelastquarterlydividendmultipliedby4Yld%=4.2:Dividendyield;(Annualizeddividend÷stockprice)PE=16:Price-to-earnings;(Latestprice÷last4actualdividends)Vol100s=14591*100;Volumeofexchangetradedshares6ReadingStockListingsHi=115:HighestsharepriceofthedayLo=113:LowestsharepriceofthedayClose=1143/4:DaysclosingsharepriceChg=13/8:Changeinclosingpricefromprevioustradingday7ObservationItisusualtotradesharesinroundlotsof100sharesIfyoudecidetotradesharesasoddlotsyouwillpayhighercommissionsStocksplitsandstockdividendscancauseyoutoholdoddlots89.2TheDiscountedDividendModel

Adiscounteddividendmodelisanymodelthatcomputesthevalueofashareofastockasthepresentvalueoftheexpectedfuturecashdividends9EquivalenceofHPRandNPVThebookstartsfromtheholdingperiodreturn,andusesaninductiveargumenttoderivetheNPVmethodforevaluatingstocksEquivalently,westartwiththediscountedcashflowmodel,andobtaintheholdingperiodreturn10NotationPjisthestockvalueinyearjDjisthecashdividendinyearjKistherequiredrateofreturnonthestock11PresentValueofDividends12ExpectedRateofReturnThepriceanddividendnextyearareexpectedprices,soTheexpectedrateofreturninanyperiodequalsthemarketcapitalizationrate,k13RateRelationshipThisrelationshiptellsyouthatnextyear’sexpecteddividendyield+theexpectedcapitalgainyieldisequaltotherequiredrateofreturn14Price0IsDiscountedExpected(Dividend1+Price1)Priceisthepresentvalueoftheexpecteddividendplustheend-of-yearpricediscountedattherequiredrateofreturn15EaseofUseEstimatingnextyear’sdividendisstraightforward,butestimatingnextyear’spriceappearstobemuchmoredifficultTheproblemisthatnextyear’spriceisobtained(eventually)byestimating,anddiscounting,everyfuturedividend16EaseofUseWehavetointroduceasimplifyingassumptionthatcapturesourunderstandingofdividendbehaviorThesecondsimplestassumptionisthatadividendinanyfutureyearisthedividendintheprioryeartimesaconstantgrowthfactor(1+g)17EaseofUseThinkofthisassomekindofdividendinflationFromchapter5weknowthatifkisthenominaldiscountrate,thentherealdiscountrate,R,isgivenbyR=(1+k)/(1+g)-118EaseofUseRecallfromchapter4that,foraperpetuity,thepresentvalueistherealvalueofthefirstcashflowdividedbytherealrate19PuttingThisTogether20SolvingforK

21G=CapitalGainsYieldComparingpriorresults:22ConclusionThecapitalgainsyieldisequaltothedividendgrowthrate23GeneralizationThismodelcapturesmanyofthecharacteristicsofdividendcashflowsYoucouldnextassumethattherateofgrowth,g1,isvalidfroma1tob1,followedbyg2froma2(=b1+1)tob2,...Justlikethefolkinchapter5,businessesgrow,mature,anddecay24MoreGeneralModelsChapter5containsanalternativederivationofgrowingperpetuityformulaItalsocontainstheequations,Excelworkbooks,andworkedexamplesforgrowingannuitymodelsofcommonstock259.3EarningandInvestmentOpportunityAsecondapproachtoDCFvaluationfocusesonfutureearningsandinvestmentopportunitiesThisfocus,ratherthantheearlierdividendfocus,concentratestheanalyst’sattentiononthecorebusinessdeterminantsofvalue26CashFlowStatementsInchapter3wereviewedcashflowstatements.Algebraically,Netincome+depreciation-increasedworkingcapital-increaseP&E-dividends+increaseindebt-increaseininvestmentinmarketablesecurities=027CashFlowStatementsWesimplifythisByrollingchangesinworkingcapital,andP&E,intochangeininvestmentsByassumingpureequityfunding(nodebt)ByassumingnomarketablesecuritiesNetincome+depreciation-dividends-changeininvestments=028CashFlowStatementsWewanttoretainnetincomeasanaccountingentityinordertomaketheanalysisusefulDepreciationis“accountingdepreciation”andnotmarketvalueattrition.(Assumethesehappentobeequal)Definenetnewinvestmentsasnewinvestments-depreciation29EarningandInvestmentOpportunityTosimplifytheanalysis,supposethatnonewsharesareissued,andnotaxesDividends=earnings-netnewinvestment“D=E-I”.Theformulaforvaluingstockis30InterpretationThevalueofacompanyisnotequaltothepresentvalueofitsexpectedearnings31InterpretationNetnewinvestmentmaybepositiveornegativeThelossofexistingassetvaluemaynotalwaysbecompensatedbynewinvestmentEarningsarewhataccountantsunderstandbytheterm,namelynetincomeafterinterestandtaxWearefinancefolk,buttheaccountantsprovidetheinformation32NogrowthNogrowthCohasapolicyofnonetnewinvestmentsThisdoesnotmeanthefirmdoesnotinvestinnewplantandequipment--onlythatpurchasesmatchthelossofvalueoftheexistingassets(asmeasuredbydepreciation)Ifweassumeeverythingisinrealterms,itisreasonabletoassumethatNogrowthwillpayaconstant(say)$15/shareeachyear33NogrowthIftherealcapitalizationrateis15%,thenthevalueofNogrowthis15/0.15=$10034GrowthStockGrowthstockCoinitiallyhasthesameearningsasNogrowth,butreinvests60%ofitsearningseachyearintonewinvestmentsthatyieldarealrateofreturnof20%peryear35GrowthStockThemanagementofGrowthstockmaybethoughtofastaking60%oftheshareholder’svalue,andreinvestingitonbehalfoftheshareholdersThatistheshareholdershave$100*0.4=$40ofthevalueoftheoldstream,andmanagementinveststheremaining$100*0.6=$6036GrowthStockThefirstcashflowistheresultofinvesting$15*0.6=$9inyear1toobtain$15*0.6*0.20=$1.8foreverInyear1thishasavalueof$1.8/0.15=$12Thereisasecond,third,fourth,…flowstartinginyear3,4,5,…also$12Thepresentvalueofthesestreamsis12/0.15=$8037GrowthStockMagicManagementhastakenshareholdervalueof$60andturneditinto$80Themagicdoesnotstophere.Managementwilltake60%ofthenewcashflowsandreinvestthemtoreturna80/60rewardtotheshareholders,andreinvest60%ofthoseThewealthoftheshareholderswillbecomeprogressivelymultiplied38GrowthStockOriginalwealthKeptReinvestedWealthMultiplier39GrowthStock40GeneralizeLettheV=valueoftheshareswithoutreinvestmentG=thegrowthfromnewinvestmentR=retentionratioM=wealthmultiplier=g/iWealthg=wealth0*(1-r)/(1-w*r)41ObservationIfmanagementhadselectedaslightlyhigherretentionratior=i/g=0.20/0.15=0.75,thenthevalueofthecompanygoestoinfinityWhenthiskindofthinghappensinfinance,itisasignthatsomethinghasbeenmissedoutoftheanalysisTherequiredrateofreturndemandedbyinvestorsmayneedtobeincreased42AlternativeSolutionMethodRecognizingthatG=changeinearnings÷earnings =(netinvestment÷earnings)*(Changeinearnings÷netinvestment)Growthisthentheproductoftheearnings-retentionrateandtherateofreturnonnewinvestmentPricegrowth=6÷(0.15-(0.6*0.2))=$20043AlternativeSolutionMethodTheincreaseinthevalueofthestockistheconsequenceofreinvestmentatahigherrateofreturnthantheinvestorrequiredrateofreturnNormalgrowthhasinvestmentopportunitiesof15%,butstillreinvests60%oftheearnings44ReinvestmentUnderNormalGrowthRetentionRatioGrowthRateCostofCapital45ReinvestmentUnderNormalGrowthInthiscasethereisnoincreasedvaluetotheshareholders46NogrowthandNormalprofit47AReconsiderationofthePriceMultipleApproach

RecalltheP0=e1/k+NPVoffutureinvestmentsIntermsofP/EP0/

E1=1/k+NPV/E1offutureinvestmentsFirmswithhighPEratiosaretheninterpretedashavinglowcapitalizationratesorexcellentfutureinvestmentopportunities48DoesDividendPolicyAffectShareholderWealth?

DividendpolicyofacorporationThepolicyregardingpayingoutcashtoitsshareholders,holdingconstantitsinvestmentandborrowingdecisions499.4ReconsiderationofthePrice/EarningsMultipleApproachTheformulaforagrowingperpetuityis:509.5DoesDividendPolicyAffectShareholderWealth?

Inafrictionlessworldwheretherearenotaxesnortransactioncosts,thedividendpolicy(asdefinedinthelastslide)willhavenoaffectonthewealthofstockholdersWeshallexamine:tax,regulations,costofexternalfinancing,andinformationcontentofdividends51CashDividendsandShareRepurchasesAcorporationmaydistributecashBypayingdividendsAllshareholdersarepaidthesamepershareByrepurchasingitsownstockShareholderschoosingtoliquidatesomeoralloftheirholdingssellthesharesatmarketprice(astheynormallydo),andthecompanymakesmarketpurchases52Illustration:DividendPaymentThefollowingtableshowsasimplifiedbalancesheetofCashrichCoAssumeNumberofsharesoutstanding=500,000Shareprice=$2053Illustration:Dividends54Illustration:DividendPaymentIfCashrichdeclaresadividendof$2/shareitwillpay500,000*$2=$1,000,000Givenitslevelofrisk,thepaymentwillreducethemarketvalueofthesharesby$1,000,000to$20*500,000-$1,000,000=$9,000,000,soeachsharewillbeworth$9,000,000/500,000=$18/share55Illustration:DividendPaymentWas2Was10Were12Were1256Illustration:DividendPaymentBeforethedividend,everysharewasworth$20Afterthe$2/sharedividend,everysharewasworth$18ConclusionShareholderswealthisunchanged57Illustration:ShareRepurchaseTheoriginalbalanceisshownbelowSharepriceisstill$20Numberofsharesoutstandingis500,00058Illustration:ShareRepurchase59Illustration:ShareRepurchaseThecompanyrepurchases50,000sharesat$20pershare=$1,000,000Themarketvalueofthefirmisnow$10,000,000lessthelossof$1,000,000cash,or$9,000,000Thenumberofsharesoutstandingisnow500,000-50,000=450,00060Illustration:ShareRepurchaseThesharepriceisthen$9,000,000/450,000=$20ThewealthoftheshareholderswhosoldoutisunchangedThewealthoftheshareholderswhoheldthestockisunchanged61Illustration:ShareRepurchaseWas2Was10Were12Were1262StockDividendsCorporationssometimesdeclareastocksplitanddistributestockdividendsTheseactivitiesdonotdistributecashtotheshareholdersTheyincreasethenumberofissuedshares,butdonotchangethe%ofthecompanyeachshareholderownsTheydonotaffectshareholderwealth63ModiglianiandMillerInafrictionlessenvironment,wheretherearenocostsofissuingnewsharesofstock,norcostsofrepurchasingexistingshares,afirm’sdividendpolicycanhavenoeffectonthewealthofcurrentshareholders64TheRealWorld:ShareRepurchaseSmartCohashadagoodyear,andisconsideringrepurchasingsomeoutstandingstockinordertopreventsomeofitsshareholderspayingpersonalincometaxonthedividendTherearerestrictionsonthiskindofpracticeinmanycountries,includingtheUSA65TheRealWorld:RetainingSurplusCashtoShelterItSmartCohashadagoodyear,butisconsideringnotdeclaringadividendSmartdoesn’tneedthecash,butholdingcashtaxshelterstheshareholdersIRSrulesprovidehugepenaltiesforthiskindofactivity66TheRealWorld:AsymmetricInformationThemanagementofCrypticCoisconcernedthattheinvestmentcommunitydoesnotunderstanditsbusinessIthasdecidedtofinanceprojectsusingcheaperretainedearningsratherthanissuingmorestockatadiscountfromits“true”marketvalue67TheRealWorld:SignalingThemanagementofTripCohashadasinglebadyear,buthasdecidednottoreduceitsdividendReducingthedividendmaysendasignaltotheinvestmentcommunitysaying“ThefundamentalsofTriphavechanged:considerdecreasingfuturedividendestimatesand/orconsiderincreasingthecostofcapitaltocompensateforadditionalrisk”68AFinalThought:AreFrictionlessWorldsEnough?LargefirmsusuallyhavelimitedliabilityEarningsfollowastochastictrajectoryCouldrepurchasingshares(orpayingdividends)changeshareholderwealth(despiteourarguments)?69Chapter10:

Principlesof RiskManagementObjectiveRiskandFinancialDecisionMakingConceptualFrameworkforRiskManagementEfficientAllocationofRisk-Bearing70Chapter10Contents10.1WhatisRisk?10.2RiskandEconomicDecisions10.3TheRisk-ManagementProcess10.4TheThreeDimensionsofRiskTransfer10.5RiskTransferandEconomicEfficiency10.6InstitutionsforRiskManagement10.7PortfolioTheory:QuantitativeAnalysisforOptimalRiskManagement10.8ProbabilityDistributionsofReturns10.9StandardDeviationasaMeasureofRisk7110.1WhatisRisk?

UncertaintyAnunrealizedeventisuncertainforanobserveratagiventimeifhe/shedoesnotknowitsoutcomeatthattimeIenterasealedbidonapubliccontractThevalueofmybidiscertaintomeBeforeunsealing,mybidisuncertaintoyouAfterunsealing,mybidisknowntoyou72Uncertaintythatmatters

Riskisuncertaintythat“matters”totheobserverYoumanage“TheIntergalacticHerrings”andhaveachoicebetweentwocontractsfortheconcerthall1Paythehallowner$2foreachticketsold2Payaspecifiedlump-sumforthehallthathasalowerexpectedcostthan(1)73ContractualOutcomes“Ticketsales”isthe“riskthatmatters”Whileeachfanmaybecertainaboutattendingornotattending,managementisnotfullyinformed,andisatriskbecauseifsalesareinfacthigherthanN*,itpaysmoreifitselectedchoice1ifsalesareinfactlowerthanN*,itpaysmoreifitselectedchoice274StrategiesforControllingRiskHerring’smanagementhasseveralstrategiesforreducingcost-uncertaintyDoresearchtodeterminethenumberoffansandthepercentageoffanswhowillattendForafee,obtaintherighttoselectbetweencontract1and2atalaterdateHedgewithcontractstothirdparties,(radiostation,concessionaires,contractors,…)75NamingtheStrategies:ResearchThefirststrategyispurchasinginformationbyresearchThereisacostassociatedwithcollectinginformation,butinformationenablesonetomakebetter-informeddecisionsInformationisoftencollectedincrementally,andadecisionismadeateachstepwhethertocontinuecollectingfurtherinformation76NamingtheStrategies:InsuranceorOptionThesecondstrategyentailspurchasingtherighttomakeachoicebeforeaspecifiedtimeHavingtherighttakeanactionwheninformationbecomesclearercanbevaluableInthiscase,theoptionistherighttodelayselectionoftheexactcontractualtermsTheobligationtorentthehallmightbeagoodquidproquofortheoption77NamingtheStrategies:HedgingThethirdstrategycreatessecondarycontractsthatreduceoverallexposuretotheriskcreatedbytheprimarycontractAprimaryfixed-feerentalcontractcreatesaforwardpositionin(unknown)futuresalesHerringmayoffsetthisriskbyrequiringitsconcessionairestoenterintofixedrentalfeecontractsratherthan%ofsalescontracts78WhatisRisk?RiskAversion

Herring’sultimatecontractingstrategywilldependuponitslevelofriskaversionRiskaversionAmeasureofanindividual’swillingnesstopayforareductioninexposuretorisk79WhatisRisk?Upside-Down

Herringhasachoiceofcontracts,andeachhasanupsideandadownside,dependingonthevariablethatcontrolsthe“riskthatmatters”Upside:favorableoutcomeDownside:unfavorableoutcome80WhatisRisk?BothUpsideandDownside

Somerisksaremorecomplex.Acomputermother-boardmanufacturerthatunderestimatesdemandwilllosecurrentsalesandmarketshareoverestimatesdemandwillownaninventorywithamarketpricethatisbeingerodedbyrapidtechnologicalobsolescenceAnydeviationisunfavorable81WhatisRisk?20/20HindsightTheappropriatenessofarisk-managementdecisionshouldbedeterminedusingonlytheinformationavailablewhenthedecisionwasmadeWeshouldavoidcoloringourjudgementofaearlierdecisionwithfactsknowafterthedecisionBut...82WhatisRisk?PreservingyourOptionsBut…adecisionthatpreservestheabilitytomakein-flightcorrections(atasmallcost)overonethatdisposesofthatabilitycharacterizesawell-madedecision“Preserveyouroptions”83WhatisRisk?KnowingwhentoPurchaseInformationBut…adecisionthatwasbasedontimelyandcarefullypurchasedinformationcharacterizesawell-madedecision“Knowwhentobuyavowel”84WhatisRisk?

TailortheContractBut…Riskreductionclausesmayoftenbeincludedinacontractatverylittlecostwhenthecontractiswritten,butareexpensivetoaddasacontractamendmentDevelopastandardsetofrisk-relatedclausesthatmaybeincorporatedintodraftcontractsWhennegotiating,thinkintermsofbothexpectedcostsandtheirassociatedrisks85WhatisRisk?LookingBackBut…RevisitriskydecisionsinthelightoftheiroutcomestoimprovefuturedecisionmakingThisisnottopraiseluckymanagementnorscoldunluckymanagementAsk:“Howcouldtheinfrastructuresupportingdecisionmakingbeimprovedbypreparingfortheminadvance?”(e.g.Maintaincurrentdatabaseofkeyvariables)86WhatisRisk?RiskExposureIfyoufaceaparticularkindofriskbecauseofthenatureofyourjob,business,orpatternofconsumptionyouhaveaparticularriskexposure87WhatisRisk?Risk-ControllingToolsManytoolthatmaybeusedtoreduceriskmayalsobeusedtoincreaseriskIfyouinsureyourhouseagainstfire,youarereducingyourrisk(Hedger)IfIinsureyourhouseagainstfire,Iamincreasingmyrisk(Speculator)(Probablynotaninsurablerisk:moralhazardlackofalegitimateeconomicpurpose)8810.2RiskandEconomicDecisionsRiskexposureofhouseholds:Sickness,disability,&deathrisksUnemploymentriskConsumer-durableassetriskLiabilityriskFinancialassetrisk89RiskexposureoffirmsInput/outputchannelsstrike,boycott,embargo,war,safety,supply/demandLossofproductionfacilitiesfire,legislation,civilaction,strike,nationalization,warLiabilityriskcustomer,employee,community,environmentPricerisksinput,output,foreignexchange,interestCompetitorrisktechnology,intellectualproperty,economic90Government:Majorcalamitiesweather,forestfires,riotsGuaranteesexports,smallbusinessloans,mortgages,andstudentloans,croppricesInterventionsbankfailures,strategicfirmfailures,cropfailures,medicalcoverage9110.3TheRisk-ManagementProcessRiskidentificationRiskassessmentSelectionofrisk-managementtechniquesImplementationReview92RiskidentificationSomerisksarecommonlyunder-identified,andsoarenothedgeddisabilitycoverageisoftentoolowSomerisksthatdonotexistare‘hedged’lifeinsuranceisoftenover-prescribedSomerisksoffseteachotherliabilityofacarwithinafleet;price/quantity93RiskassessmentThequantificationoftheidentifiedrisksquantificationofexposuretoriskrequiresspecializedskillsActuariesInvestmentcounselors94Selectionofrisk-managementtechniquesRiskavoidanceLosspreventionandcontrolRiskretentionRisktransfer95ImplementationRisktransferrequiresfindingasuitabletransfervehicleatanacceptablepriceObtaincompetitivequotationsandlookatalternativewaystohedgeConsiderthemixofupsidetodownsideriskOptionssheddownsiderisk,whilemaintainingupsidepotential(ataprice)Futuresshedbothdown-andup-siderisks96ImplementationSomerisksmaybeshedonlyimperfectlyAspecialtyricegrowermaybeabletolowerbutnoteliminateriskusingcerealfuturesAseedgrowermaynotbeabletosignificantlyreducepricerisk97ReviewManagementofriskshouldbeanongoingsystematicactivitybecauseriskexposurechangesaspeoplematureMaintainingflexibilitywillenableyoutoreactmoreappropriatelytochangeTermlifeinsurancewithanannualrenewabletermismoreflexiblethanpolicieswithoutthisclause9810.4TheThreeDimensionsofRiskTransferHedgingInsuringDiversifying99HedgingAriskishedgedwhentheactiontakentoreduceadverseriskexposurealsocausesthelossofunexpectedgainAfarmerwhosellshercropbeforeitisharvestedreducestheriskoflowerpricesandloweryields,butsurrenderstherighttoincreasedpricesandyields(Note:Wesometimesuse“hedge”toinclude“insure”)100InsuringInsuringisthepaymentofapremiumtoavoidlossesInsuranceisnothedgingbecauseyoumaintainownershipintheupsidepotentialAfarmerhastheright,butnottheobligationtosellsoytothegovernmentatasetprice101DiversifyingDiversificationmeansholdingsimilaramountsofariskyassetinsteadofalargeramountofasingleriskyassetIhaveidentified10corporationsthateachhaveanexpectedreturnm=0.15,astandarddeviations=0.20,andarecorrelatedwitheachotherwithrho=0.9102s=0.2000s=0.1421s*=0.1342TheoreticalMinimum103ObservationMostofthediversificationisobtainedbyincludingjustafewstockintheportfolioRiskcanonlybereducedtoafixedlevelthatdependsonthecorrelationProgressivelyaddingonemorenewstockhasadiminishingaffectonrisk104EquationforHomogeneousDiversificationwithnStocks10510.5RiskTransferandEconomicEfficiency

Institutionalarrangementsfortransferofriskcontributetoeconomicefficiencybyallocatingexistingriskstothosemostwillingtobearthemreallocationofresourcestoproductionandconsumptioninaccordancewiththenewdistributionofrisk-bearing10610.6InstitutionsforRiskManagement

Acompletemarketforallocatingriskwouldpermittheseparationofproductiveactivityandrisk-bearingWhiletechnologyisdrivingtheriskmarket-placetowardscompleteness,thiswillnotbeachievedbecause:transactioncostsincentivecosts10710.7PortfolioTheory:QuantitativeAnalysisforOptimalRiskManagement

PortfoliotheoryquantitativeanalysisforoptimalriskmanagementPortfoliotheoryselectsfromasetof(usuallydivisible)risksbyoptimizingrisk-returnConsumptionandriskpreferencesareexogenousItissometimespossibletodeviseastrategythatreducestheriskofallcontractingparties10810.8ProbabilityDistributionsofReturnsAssumethattherearetwostockavailable,GENCOandRISCO,andeachrespondstothestateoftheeconomyaccordingtothefollowingtable109ReturnsonGENCO&RISCO110ProbabilityDistributionofReturns

forGenco11150%30%10%-10%-30%RISCOGENCO00.10.20.30.40.50.6ProbabilityReturnProbabilityDistributionsofReturnsofGENCOandRISCO112ObservationBothcompanieshavethesameexpectedreturn,butthereisconsiderablymoreriskassociatedwithRISCO11310.9StandardDeviationasaMeasureofRisk

Equations:Mean114Equations:StandardDeviation115ObservationTheexpectedreturnsofGENCOandRISCOhappentobeequal,butthevolatili