Preamble
Module 4 includes video 25 – 30. Scroll down to view all videos.
25. Risk and Return: Mean-Variance Criterion and Diversification
What is the risk and return trade-off, and why is it important when considering investments?
Introduction to risk and return and how the trade-off can be captured in the mean-variance criterion, how risk can be measured with variance and standard deviation, the components of risk (systematic and unsystematic risk), and how certain types of risk can be diversified away in a portfolio of investments.
26. Capital Market Line
Introduction to the Capital Asset Pricing Model (CAPM), and how it predicts the expected returns on stocks based on the market risk premium (or the equity risk premium) and beta.
Learn about what the Security Market Line (SML) is, how it plots the predicted expected return (based on CAPM) for each possible value of beta, and how it can be used to find mispriced assets along with the concept of Jensen’s Alpha.
27. Security Market Line and the Capital Asset Pricing Model
Introduction to the Capital Market Line (CML): what is it and how can we interpret it?
Learn about what the efficient frontier is, and how it can be built. Also learn about where the minimum variance portfolio (MVP) sits on the efficient frontier, and the significance of its role in investment portfolios.
28. CAPM: Beta
After learning about the Capital Asset Pricing Model (CAPM) and how it uses the market risk premium (or equity risk premium) and Beta to calculate the expected return on a stock, we will now dive deeper into what Beta is, how it can be calculated, and how we can interpret it to better understand how risky or sensitive a stock’s return is relative to the market return.
29. WACC: Introduction and Calculating the Weights
In finance, we know to use “r” as the appropriate rate to discount cashflows to account for risk and the time value of money. This “r” is also known as the cost of capital, opportunity cost, discount rate, interest rate, required rate of return, market rate, or the yield to maturity. But where does this “r” come from?
Learn about what WACC (the weighted average cost of capital) is, how its components can be calculated, and how it can be used to discount cashflows.
30. WACC: Calculating the Costs of Capital
This is the second video in the two-part series on WACC (the weighted average cost of capital). Please watch the first part before watching this video.
Continue to learn about how the components of WACC can be calculated, and how WACC can be used as the appropriate discount rate, “r”, when discounting cashflows and valuing a firm.
Preamble
Module 3 includes video 20 – 24. Scroll down to view all videos.
Preamble
Module 2 includes video 10 – 19. Scroll down to view all videos.
Preamble
Module 1 includes video 1 – 9. Scroll down to view all videos.
20. NPV: Timing of Cash Flows
Introduction to Net Present Value (NPV), what it is, how it is calculated, and how it can be used to make decisions on investments. We will practice drawing good timelines to keep track of numbers while working through an example.
21. NPV: Cash Outlays and Sign Conventions
Overview of the different types of costs, and which costs are relevant to Net Present Value (NPV) in our decision to accept or reject an investment project.
22. NPV: Differentiating Sunk Costs and Opportunity Costs
Identifying the relevant costs to Net Present Value (NPV) in our decision to accept or reject an investment project, with a particular focus on costs we should not consider (such as sunk costs), and costs we should consider (such as opportunity costs).
23. Evaluating Projects: Interpreting the Internal Rate of Return
Using the Internal Rate of Return (IRR) method in deciding whether to accept or reject an investment project. We learn about what IRR means, how it is calculated, how to interpret it, and how it can be used to evaluate investment project decisions.
24. Alternatives to NPV: Payback Periods and Average Accounting Return
Comparing different methods to evaluate a project: net present value (NPV), internal rate of return (IRR), payback periods, and average accounting return. What are the advantages and disadvantages of each method when considering whether to accept or reject an investment project? When is it most appropriate to use each method?
10. Bond Valuation and Coupon Payment Formulas
What are bonds, what are its characteristics, and how do we find their prices?
Introduction to the bond valuation formula, an application of annuities and loans, as well as calculating the periodic coupon payments.
11. Bond Valuation: Coupon Rates and Yield to Maturity
When do bonds sell at par value, at a discount, or at a premium? How does the relationship between a bond’s coupon rate and market’s interest rate affect the price of a bond? What is the yield to maturity (YTM) of a bond, and what its key assumptions?
19. Deriving the Ex and Cum Dividend Formulas
How do you price stocks? Deriving the ex and cum dividend formulas of the Gordon Growth Model, which are used to calculate the present value or the price of constant growth stocks (ie stocks with constantly growing dividends).
18. Stock Valuation: Multistage Growth Model
How do you price stocks? Calculating the present value or the price of supernormal growth stocks (ie stocks that experience stages of growth with different growth rates) by using the Multistage Growth Model.
17. Stock Valuation: Gordon Growth Model
How do you price stocks? Calculating the present value or the price of constant growth stocks (ie stocks with constantly growing dividends) by using the Gordon Growth Model.
16. Stock Valuation: Zero Growth Stocks
How do you price stocks? Calculating the present value or the price of zero-growth stocks (ie stocks with constant dividends) by using the perpetuity formula.
15. Introduction to Stocks and Dividends
What are stocks, what are its characteristics, and how do we find their prices? Theoretical introduction to what stocks are, how they are different than bonds, and the different types of stocks.
14. Nominal vs Real Interest: the Fisher Equation
What is inflation, and how can it be reflected in interest rates? Introduction to nominal interest rates, real interest rates, and how they are different. Using the Fisher Equation to convert between nominal interest rates and real interest rates.
13. Calculating a Bond’s Realized Return
When will a bond’s actual or realized returns differ from its expected returns or its yield to maturity (YTM)? Introduction to the realized rate of return (RoR) of a bond, where it comes from, how it’s calculated, and how it can be annualized.
12.2. Bond Risks Part 2: Default Risk
What is the default risk of bonds? How does default risk affect a bond’s return? Introduction to the Term Structure that plots the total return of a bond against its time until maturity.
12.1. Bond Risks Part 1: Interest Rate Risk
What is the interest rate risk of bonds? Calculating how bonds with different maturity dates and different coupon rates respond differently (ie have different sensitivities) to the same change in the market interest rate.
31. Market Efficiency
What information is reflected in the market price of a security? In this video, we explore three different hypotheses regarding market efficiency: weak-form efficiency, semi-strong form efficiency, and strong form efficiency. We discuss the implications of these hypothesis on which activities will earn us a return above the market without needing to take on additional risk. Can investors profit from technical analysis? How about fundamental analysis, or insider trading?
1. Time Value of Money: Calculating Present and Future Value
Why is time important?
Introduction to the Present Value (PV) formula, the Future Value (FV) formula, and the concept of the Time Value of Money (TVM).
2. Interest Rates and Compounding Periods
What is simple interest? What is compound interest? How are the two different?
Introduction to compounding periods: annual, semiannual, monthly, weekly, daily, continuous, etc.
What happens when cashflows occur prior to the end of a compounding period?
9. Relating All the Factors of Present Value
How do interest rates, time, and fixed payments affect present value? What happens to the present value when multiple variables change at the same time?
8. Amortization of Loans: Fixed Payment
What are fixed payment amortized loans, and how are they different from fixed principal amortized loans?
Using an Excel walk-through of an amortization schedule to determine how much of the fixed payment is paid towards the principal, and how much of it is paid towards interest.
7. Amortization of Loans: Interest and Fixed Principal
Introduction to loans, the components of a loan, and different types of loans (pure discount loan, interest only loan, fixed principal amortized loans).
How to calculate the remaining balance on a loan? How to amortize a loan over its lifetime?
6. Annuities Due and Moving Annuities
Annuities continued: What are annuities? What are moving annuities?
Applying the present value of annuities formula and the future value of annuities formula to calculate annuities due and moving annuities.
5. Perpetuities and Annuities: Deriving the Formulas
What are perpetuities? What are annuities?
Introduction to the present value of perpetuities formula and the present value of annuities formula.
Calculating the present value of perpetuities and annuities in Excel.
4. Interest Rates: Effective Period Rates
What are effective period rates? How are they different than the quoted annual percentage rate (APR) and the effective annual rate (EAR)?
Introduction to the effective periodic rate (EPR) formula to convert APRs into EPRs.
3. Interest Rates: Effective Annual Rate vs Annual Percentage Rate
What is the quoted annual percentage rate (APR)? What is the effective annual rate (EAR)? What about the effective periodic rate?
How are they all different, and how can they be used to help us evaluate whether the rate is attractive, or even legal?