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mba/ch45.org

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 - [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4283486#overview][S08:L45 Risk & Return, Business Statistics, Security Law]]
 
 * Notes
+
+** debt
+- senior debt: debt secured via access to assets upon default
+  - they have the first claim on company if you go belly up
+- subordinate debt: less rights
+
+** risk and return
+*** expected return
+
+** equity return
+- profit or loss generated on an investment in equity (owneship interest in a company) over a specific period
+- expressed as a percentage of the original investment amount
+
+*** components of equity return
+- capital gains: increase in stock price
+- dividends: payments made to shareholders
+  - cash
+  - additional shares
+
+*** formula for equity return
+\[
+\text{Equity Return} = \frac{(\text{Ending Price} - \text{Initial Price}) + \text{Dividends}}{\text{Initial Price}} \times 100
+\]
+
+*** formula for public equity return
+\[
+\text{Equity Return} = \text{Risk Free Rate} + \text{Volatility} x \text{Outperformance}
+\]
+
+- returns from publicly traded stocks
+
+**** Risk Free Rate includes inflation
+  - This is the return on an investment with zero risk, typically represented by government bonds like U.S. Treasury bills.
+  - It accounts for inflation and is considered the baseline rate of return.
+  - Example: If the current inflation rate is 2% and Treasury bonds yield 3%, then the Risk-Free Rate is 3%.
+
+**** Volatility: The volatility of the company versus the market
+  - measures how much the stock price fluctuates relative to the overall market.
+  - It's often represented by beta (β) in the Capital Asset Pricing Model (CAPM), where β > 1 means the stock is more volatile than the market.
+  - For example, a volatility of 1.2 indicates the stock is 20% more volatile than the market.
+
+**** Outperformance: how much we expect stocks to outperform government bonds
+  - This is the expected premium that equity holders expect stocks to generate over government bonds.
+  - It reflects the idea that since stocks are riskier than government bonds, investors expect higher returns.
+  - This value could be determined from historical stock market returns minus bond returns. For example, if stocks historically outperform bonds by 4%, the Outperformance might be set to 4%.
+
+** cost of capital if we use equity and debt
+*** WACC: Weighted Average Cost Of Capital
+
+** securities law and ventures financing
+- serious jail sentences
+- ignorance is no excuse
+
+*** basic laws
+- potential investors must receive all relevant information before investing
+  - all risks
+  - this is called an S1
+- if you have been defrauded you should receive compensation
+  - class action lawsuits
+- insider information for publicly traded stocks is illegal and results in prison (no excuses)