Security valuation In general, the intrinsic value of an asset= the present value of the stream of expected cash flows discounted at an appropriate required rate of return
Chapter 6: Objectives Inflation and rates of return How to measure risk (variance, standard deviation, beta) How to reduce risk (diversification) How to price risk (Security market line, CAPM)
Corporate restructuring 1960s- Mergers of unrelated firms formed huge conglomerates 1980s-Investors purchased conglomerates and sold off the pieces as independent companies. 1990s- Strategic mergers of related firms to create synergies
Innovations in Risk Management Futures contract a contract to buy or sell a stated commodity or financial claim at a specified price at some specified future time