tailieunhanh - Ebook Fundamentals of corporate finance (2E): Part 2

(BQ) Part 1 book "Fundamentals of corporate finance" has contents: Risk and return in capital markets, systematic risk and the equity risk premium, the cost of capital, the cost of capital debt financing, capital structure, payout policy, working capital management,.and other contents. | Risk and Return PART 4 Valuation Principle Connection. To apply the Valuation Principle, we Chapter 11 must be able to discount the future costs and benefits of a decision. To do so, we need Risk and Return in Capital Markets a discount rate that should reflect the risk, or uncertainty, surrounding those future costs and benefits. Our objective in this part of the book is to explain how to measure and compare risks across investment opportunities and use that knowledge to Chapter 12 determine a discount rate, or cost of capital, for each investment opportunity. Chapter Systematic Risk and the Equity Risk Premium 11 introduces the key insight that investors only demand a risk premium for risk they cannot costlessly remove themselves by diversifying their portfolios. Hence, only nondiversifiable risk will matter when comparing investment opportunities. In Chapter 12, we quantify this idea, leading to the Capital Asset Pricing Model (CAPM), the central Chapter 13 The Cost of Capital model of financial economics that quantifies what an equivalent risk is and in doing so provides the relation between risk and return. In Chapter 13, we apply what we’ve learned to estimate a company’s overall cost of capital. 315 Risk and Return in Capital Markets 11 LEARNING OBJECTIVES Q Identify which types of securities have historically had the highest returns and which have been the most volatile Q Compute the average return and volatility of returns from a set of historical asset prices Q Describe the difference between common and independent risk Q Explain how diversified portfolios remove independent risk, leaving common risk as the only risk requiring a risk premium Q Understand the tradeoff between risk and return for large portfolios versus individual stocks dividend paid on date t _ R price on date t SD (R ) standard deviation of return R Rt 316 Divt Pt notation realized or total return of a security from date t - 1 to t Var (R ) variance of .