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Summary Fin Man 2.2 Glossary
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Summary study book Corporate Finance of Jonathan Berk & Peter Demarzo (CH 30 31) - ISBN: 9780273792024, Edition: 3e editie, Year of publication: -
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CH10Probability distribution (PR) de mogelijkheid op een return
Expected(/mean) return gewogen gemiddelde van een possible return
E(R) = ∑ r R
Variance expected squared deviation from the mean. Hoe spread-out de verdeling van means is
Standard deviation swuare root of the variance
Var (R) = E(R-E(R))²
SD(R) = √
Volatility finance naam voor standard deviation
Realized return die echt gebeurd is in een bepaalde tijdsperiode
Rt+1 = = dividend yield + capital gain rate
Empirical distribution histogram met historische data over het aantal jaar da teen bepaalde annual
return was.
Average annual return average van realized returns voor elk jaar
RCHaverage = (R1 + R2 + … + RT)
Var (R) = ∑ t – Raverage)²
Standard error standard deviation van de geschatte waarde van de mean en de echte waarde.
Standard error of the estimate of the expected return
√
95% confidence interval historisch average (2 standard error)
Excess return verschil tussen average return voor investment en average return voor treasury bill.
Common risk perfectly correlated risk (aardbeving)
Independent risk risico zonder correlatie (theft)
Diversification the average out of independent risk in larger portfolio
Firm specific/idiosyncratic/unique/diversifiable risk fluctuation of stock’s return dor independent
news, dit risico heet.
Systematic/undiversifiable/market risk fluctuations door marketwide news/ common risk
Efficient portfolio een portfolio met alleen systematic risk, er is geen mogelijkheid om risico te
verminderen.
Market portfolio portfolio van sotcks and securities traded op de kapitaal markt
BETA the beta of a security is the expected % change in it’s return given a 1% change in the return of
the market portfolio.
Market risk premium = E(mkt) = rf
Capital asset pricing model (CAPM) meest gebruikte method om cost of capital te schatten
rf + (E(Rmkt)- rf)
,CH11
Portfolio weights hoeveel van de totale investering zit in een individu van het portfolio
X1 =
Covariance expected product of the deviations of two returns form their means
Cov(RA,RB) = E[(RA-E(RA))(RB – E(RB)]
Correlation quantify de strength of de relation en control volatility
Ligt tussen -1 en = uncorrelated / -1 = opposite directions
Corr(RA,RB) =
Variance of a 2-stock portfolio met Rp = x1R1 + x2R2
Var(Rp) = Cov(Rp,Rp)
= Cov(x1R1 + x2R2, x1R1 + x2R2)
= x1x1Cov(R1,R1) + x1x2Cov(R1,R2) + x2x1Cov(R2,R1) + x2x2Cov(R2,R2)
Equally weighted portfolio portfolio waarin gelijke hoeveelheden zijn geinvesteerd in elke stock
Volatility of a portfolio with arbitrary weights SD(Rp) = ∑ 1 SD(R1) corr (R1,Rp)
Inefficient portfolio als er een mogelijkheid is tot het vinden van een beter portfolio
Long position positive investment in a security
Short position negative amount investeren, je verkoopt stock die je niet hebt (winstgevend bij lage
prijzen in de toekomst)
Efficient frontier de opties die de hoogst mogelijke expected return geven bij bepaalde volatility
Buying stocks on margin borrowing money to invest in stocks
Sharp ratio
Tangent portfolio portfolios die tangent line maakt, onder deze lijn is het het meest risicovol,
tangent heeft de hoogste sharpe ratio.
The efficient portfolio portfolio met de hoogste sharpe ratio in the economy.
Required return expected return die nodig is om de riskinvesment te compenseren
Expected return of a security E(R1) = r1 rf + eff (E(Reff) – rf)
CAPM – identify efficient portfolio zonder dat je de expected return weet
3 assumptions:
- Invesotrs can buy & sell all securities at competitive market prices and can borrow and lend
at risk free interest rate
- Investors hold only efficient portfolios of traded securities
- Investors have homogenous expectations (same estimates concerning future investments &
returns) regarding volatilities, correlations & expected returns.
Capital market line (CML) als de tangent line door het marktportfolio gaat
The CAPM equation for the expected return E(R1) = r1 rf + (E(Rmkt) – rf)
.
Security market line(SML) alle individuele securities worden hierlangs geplot ahv Beta & expected
return.
, CH12
Value weighted portfolio portfolio waarin elke security in proportie is met zijn market capitalization
Equal-owenership portfolio een value-weighted portfolio is di took. Equal fraction of total number
shares outstanding.
Passive portfolio wanneer er maar weinig trading nodig is
Market index reports the value of a particular portfolio of securities
Price-weighted portfolio houd een equal number of shares of each stock, independent of their size
Index funds fund companies geven mogelijk om bijvoorbeeld in portfolio van S&P500 te investeren
Exchange-traded fund (ETF) security that trades directly in an exchange but represents ownership in
a portfolio of stocks.
Market proxy een portfolio that closely tracks the true market
Lineair regression statistieke techniek om beste lijn door set of points te maken
(Ri- rf) = i + i(Rmkt-rf) + i
= alpha = constant / intercept term of regression. Historische prestatiers relatieveren aan expected
return. = E(Rs) – rs
= error (residual)term: deviation van de best-fitting line (is meestal 0)
Debt cost of capital the cost of capital that a firm must pay on it’s debt
Rd = 1-p)y + p(y-L) = y-pL
= yield to maturity – prob (default) expected loss rate
Y = maturity
P = kans op default
L = expected loss per $1 of debt in the event of default
Asset cost of capital / unlevered cost of capital weighted average of the firms equity and debt cost
of capital. = (Fraction of firm value financed by equity) (equity cost of capital) + (fraction of firm
value financed by debt) (debt cost of capital)
= rU = E+ D
Asset or unlevered Beta U = E + D
Net debt = debt – excess cash and short-term investments
Enterprise value = equity + debt – cash
Operating leverage relatieve propotie van fixed v. variabele kosten
Effective after taks intererst rate = r(1- C) C = firm corporate tax rate
Weighted average cost of capital (WACC) NPV uitrekenen effective after-tax cost of capital
rwacc = rE + D(1- C)
rwacc =rU - CrD
pretax WACC is een andere naam voor unlevered cost of capital
grootste verschillen:
1. Pretax WACC is expected return on assets, handig om all-equity financed project te
evalueren
2. WACC is altijd minder dan pretax omdat tax wordt afgetrokken, kan projecten evalueren met
hetzelde risico en dezelfde financieren
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