68 lines
2.9 KiB
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Executable file
68 lines
2.9 KiB
Org Mode
Executable file
#+title: Section 8 | Lesson 45 - Risk & Return, Business Statistics, Security Law
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#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/business.css" />
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* Links
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- [[./../mba-main.org][TOC | Business]]
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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]]
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* Notes
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** debt
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- senior debt: debt secured via access to assets upon default
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- they have the first claim on company if you go belly up
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- subordinate debt: less rights
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** risk and return
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*** expected return
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** equity return
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- profit or loss generated on an investment in equity (owneship interest in a company) over a specific period
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- expressed as a percentage of the original investment amount
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*** components of equity return
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- capital gains: increase in stock price
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- dividends: payments made to shareholders
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- cash
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- additional shares
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*** formula for equity return
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\[
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\text{Equity Return} = \frac{(\text{Ending Price} - \text{Initial Price}) + \text{Dividends}}{\text{Initial Price}} \times 100
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\]
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*** formula for public equity return
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\[
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\text{Equity Return} = \text{Risk Free Rate} + \text{Volatility} x \text{Outperformance}
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\]
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- returns from publicly traded stocks
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**** Risk Free Rate includes inflation
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- This is the return on an investment with zero risk, typically represented by government bonds like U.S. Treasury bills.
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- It accounts for inflation and is considered the baseline rate of return.
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- Example: If the current inflation rate is 2% and Treasury bonds yield 3%, then the Risk-Free Rate is 3%.
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**** Volatility: The volatility of the company versus the market
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- measures how much the stock price fluctuates relative to the overall market.
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- 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.
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- For example, a volatility of 1.2 indicates the stock is 20% more volatile than the market.
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**** Outperformance: how much we expect stocks to outperform government bonds
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- This is the expected premium that equity holders expect stocks to generate over government bonds.
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- It reflects the idea that since stocks are riskier than government bonds, investors expect higher returns.
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- 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%.
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** cost of capital if we use equity and debt
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*** WACC: Weighted Average Cost Of Capital
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** securities law and ventures financing
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- serious jail sentences
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- ignorance is no excuse
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*** basic laws
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- potential investors must receive all relevant information before investing
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- all risks
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- this is called an S1
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- if you have been defrauded you should receive compensation
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- class action lawsuits
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- insider information for publicly traded stocks is illegal and results in prison (no excuses)
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