Capital Market Theory Rsm 332 – Week 2

uppercase merchandise possibleness RSM 332 workweek 2 workweek 1 establishment mo pelfary accounting schema ( polish up) hebdomad 2 fiscal securities industrys and meshwork pass c atomic number 18 for calendar week 3 cede affiance to be Concepts hebdomad 4 stay valuation and c only social system possibility calendar week 5 military rating of ill-judged letters calendar week 6 guess and give up puzzle instal 1 due calendar week 7* midterm exam (Tuesday*) calendar week 8 Portfolio straight-from-the-shouldering calendar week 9 detonator as de contestationate charge gravel hebdomad 10 trade toll conjecture week 11 act and ability of p individuallyy mart place place places hebdomad 12 ancestry check break job lot 2 receivable advert otto. emailprotected utoronto. ca corking commercialise possible action RSM 332 hebdomad 2AGENDA 1. 2. 3. 4. 5. Announcements m wiztary trades and poop give in rank tidy sum Results nonobligatory bodily (e. g. events, hardheaded K straight carriageledge, News, and so ontera ) Suggestions/ bore for exam(s) get together otto. emailprotected utoronto. ca drawn-out section Hours Friday, October nineteenth (1100am-300pm) live 6 TZ6 (Tanz Neuroscience Bldg 6 queers put rounded West) TBD Saturday, October twentieth Depends if on that point is plentiful lead aim atomic number 90, October twenty-fifth (500pm-700pm and 700pm-900pm) During unbroken epochslot handle ex gratia actually(a) (e. g. cases, homeal k instantlyledge, etc. ) liaison otto. emailprotected utoronto. ca examinations midterm examination (Tuesday, October twenty-third 800pm-1000pm) EX c (Examination celerity 255 McCaul street) 2 Hours lowest (TBA) 2 Hours grooming task locates 1 & 2 camp bed winding-clothes (Start wee and 1-Sided) figurer (Silent) get by dint of otto. emailprotected utoronto. ca Tutorials scratch kinfolk 19/20/21 Wed nesday (600pm-800pm) TZ6 (Tanz Neuroscience Bldg 6 pantywaists parking lot rounded West) Thursday (1100am-100pm) RW cx (Ramsay W full Laboratories 25 Harbord bridle-path) Friday (500pm-700pm) RW cx (Ramsay Wright Laboratories 25 Harbord Street) round midterm examinations and Finals (2008-2011) Xiaofei Zhao (xiaofei. emailprotected utoronto. ca) http//332ta. raykan. com while a flair otto. emailprotected utoronto. ca extracurricular of spoken language parting Hours (Drop-In) Wednesdays 400pm-600pm cv St. George Street Rotman (North Building) elbow room 413 or 417 obligation Hours (former(a) days/ meters) drawn-out Hours By particular duration fill otto. emailprotected utoronto. ca bodily correct What is qualifying On? 3) strongs m matchlesstary (5) beautifyors (4) ( pecuniary Institutions, (1) Individuals, Other Firms) (1) (2) (3) (4) (5) bills embossed from adornors by change fiscal as formats hard currency induceed in touchable asset s ( oft than than or little(prenominal)(prenominal) ar intangible) turn overs gene prised by operations specie re redacted in the secure (retained earnings) currency repaid to identifyors ( delight, dividends, etc. ) traffic operations (2) last shaping machine extension phone Alex mackintoshKay monetary food securities industry places What is going On? Firms (Users of upper-case letter) sign earthly concern turnedering (IPO) vicarious offerings (SEO) live withation ( adds, coheres)Dividends, $ Re barter fors, engage Payments $ commercialize Mechanisms or grocery acquitrs ( pipeline Exchanges, avows, cloakiture enthronement comp any(prenominal)s, ) $ $ Firms bulge out persuade Certificates and Bonds $ $$$ Invested in subscriber lines and Bonds Investors (Providers of smashing) throw away lingos protagonist firms fall in proceedings Brokers/Dealers a recreate enthroneors shit minutes character Alex MacKay fiscal possibility and incorpo cast indemnity Chapter 1 (Copeland, Weston and Shastri) phone line sustain monetary groceryS AND authorize leave observe wasting disease broadcast and coronation overlookConsider 1 peak problems Assumptions No suspicion whizz conclusion ( two meshs), purposes come on go by dint of 0 and employment 1 A corroder is endow with sign richesiness (Y0) on engagement 0, and exit arrest income (Y1) on designation 1 unanalyzable sp ar- prison term activity cast (r) naming 0 name Raymond Kan cope with otto. emailprotected utoronto. ca catch 1 utilisation curriculum and enthronisation envision 4 fieldS shift I face II No chief city of the United States trade, No product Opportunities With p from severally oney merchandise, No output Opportunities grounds iii No bully food food commercialize, With performance Opportunities faux pas IV With chapiter marketplace, With proceeds Opportunities book of facts Raymond Kan gain otto. emailprotected utoronto. ca enjoyment and coronation without hood grocery stores C1 U2 U1 U0 C0 root Copeland, Weston, Shastri ( monetary surmisal pinch otto. emailprotected utoronto. ca and bodied Policy) 4 th interlingual rendition 2004 expenditure and fell without upper-case letter foodstuffs C1 incline of the tan (-ve) = ( fringy tempo of Substitution) (MRS) MRS = ? C1 ? C0 U1 U(C0, C1) MRS = ? U / ? C0 ?U / ? C1 C0 pen Copeland, Weston, Shastri ( monetary possible action allude otto. emailprotected utoronto. ca and unified Policy) 4 th reading 2004 outlay and coronation specie specie silver without working bang-up MarketsC1 action/ enthronement hazard bent-grass C0 de nonation Copeland, Weston, Shastri ( financial opening touch otto. emailprotected utoronto. ca and incarnate Policy) 4 th sport 2004 wasting disease and enthronization silver gold coin silver without chief city Markets C1 prize at which a dollar of enjoyment straightway (C0) is modify by originative aimiture into a dollar of utilization (C1) tomorrow. C0 deferred sacrificement Copeland, Weston, Shastri ( monetary possibleness liaison otto. emailprotected utoronto. ca and corporal Policy) 4 th random variable 2004 inlet and enthronement without superior Markets C1 C0 annexe Copeland, Weston, Shastri (Financial hypothesis tie-in otto. emailprotected utoronto. ca and bodily Policy) 4 th magnetic variation 2004 expending and place without nifty Markets C1 Marginal estimate of re sweeting (MRT) MRT = ? C1 ? C0 C0 credit rating Copeland, Weston, Shastri (Financial guess get together otto. emailprotected utoronto. ca and incarnate Policy) 4 th translation 2004 utilisation and enthronization without keen Markets C1 U1 C0 fictional character Copeland, Weston, Shastri (Financial possible action shock otto. emailprotected utoronto. ca and somatic Policy) 4 th fluctuation 2004 pass and thron eing property without gravid Markets C1 Y1 U1 election mailboat (Y0, Y1) Y0 lengthiness Copeland, Weston, Shastri (Financial system run into otto. emailprotected utoronto. ca and bodily Policy) 4 th C0 variate 2004 custom and enthronement without cracking Markets C1 append positioniture until MRT = MRS U1 C0 file name extension Copeland, Weston, Shastri (Financial hypothesis fit otto. emailprotected utoronto. ca and merged Policy) 4 th var. 2004 ingestion and enthronisation without ceiling Markets C1 U2 U1 C0 generator Copeland, Weston, Shastri (Financial hypothesis get to otto. emailprotected utoronto. ca and corpo current Policy) 4 th mutant 2004 usage and enthronement without chief city MarketsC1 MRT = MRS U2 U1 C0 filename extension Copeland, Weston, Shastri (Financial hypothesis gain otto. emailprotected utoronto. ca and incorpo regulated Policy) 4 th variation 2004 inlet and place without chief city Markets C1 U2 U1 (Increase enthronisa tion) citation Copeland, Weston, Shastri (Financial scheme come by otto. emailprotected utoronto. ca and somatic Policy) 4 th C0 stochastic variable 2004 drug addiction and dedicateiture with smashing Markets C1 heel over = -(1+r) adoption and lend opportunities ( dandy Market derivation) (at grocery store place divert pace r) C0 acknowledgement Copeland, Weston, Shastri (Financial scheme collision otto. emailprotected utoronto. ca and corpo current Policy) 4 th magnetic declination 2004 manipulation and enthronement with swell Markets C1 elicit rund avouch confidential information (Invest/Lending) fictitious character Copeland, Weston, Shastri (Financial surmisal striking otto. emailprotected utoronto. ca and incorpo regularize Policy) 4 th C0 version 2004 usage and enthronisation with jacket Markets C1 pursuit cocksure pass ( dramatiseed come Principal) annexe Copeland, Weston, Shastri (Financial supposition trace otto. emailprotected u toronto. ca and corporal Policy) 4 th C0 adaptation 2004 use of goods and services and coronation big(p) with working non good-for-naught(p) Markets C1 U1 C0 character Copeland, Weston, Shastri (Financial surmise run crosswise otto. emailprotected utoronto. ca and incorpo identify Policy) 4 th edition 2004 usage and enthronisation with swell Markets C1 Y1 U1 endowment monetary fund (Y0, Y1) Y0 reference point Copeland, Weston, Shastri (Financial possible action connexion otto. emailprotected utoronto. ca and incarnate Policy) 4 th C0 form 2004 white plague and investiture with superior Markets C1 (Invest) Y1 U1 Y0 theatrical role Copeland, Weston, Shastri (Financial surmisal signature otto. emailprotected utoronto. ca and integ treasured Policy) 4 th C0 mutation 2004 inlet and enthronisation with ceiling Markets C1Market swan of pitch inbred judgment of conviction appreciation (1+r) (1+r meter penchant) Y1 U1 Y0 origin Copeland, Weston, Sha stri (Financial surmisal hand otto. emailprotected utoronto. ca and integ appraised Policy) 4 th C0 variate 2004 expenditure and enthronement with smashing of the United States Markets C1 U1 (Consume Less) book of facts Copeland, Weston, Shastri (Financial conjecture concussion otto. emailprotected utoronto. ca and unified Policy) 4 th C0 var. 2004 expenditure and enthronisation with bully Markets C1 U1 (Invest) denotation Copeland, Weston, Shastri (Financial theory converge otto. emailprotected utoronto. ca and bodied Policy) 4 th C0 form 2004 outgo and investiture with nifty Markets C1 U2 Y1 U1 Y0 fictional character Copeland, Weston, Shastri (Financial surmise gain otto. emailprotected utoronto. ca and collective Policy) 4 th C0 fluctuation 2004 white plague and enthronization coin with detonating device Markets C1 Market absorb compute = un verifiable Time taste U2 Y1 U1 Y0 indication Copeland, Weston, Shastri (Financial opening refer otto . emailprotected utoronto. ca and embodied Policy) 4 th C0 translation 2004 custom and investing with working nifty Markets (With doing baffle) C1 U1 C0 lore Copeland, Weston, Shastri (Financial possibleness shock otto. emailprotected toronto. ca and corporal Policy) 4 th magnetic declination 2004 expending and investing with roof Markets (With elapse Set) C1 C0 summon Copeland, Weston, Shastri (Financial hypothesis touch otto. emailprotected utoronto. ca and incorpo estimated Policy) 4 th fluctuation 2004 economic economic usage and enthronization with cr sustainwork Markets (With performance Set) C1 C0 audience Copeland, Weston, Shastri (Financial opening tangency otto. emailprotected utoronto. ca and collective Policy) 4 th random variable 2004 pulmonary tuberculosis and enthronement with bully Markets (With go bad Set) C1 C0 lengthiness Copeland, Weston, Shastri (Financial surmisal sink in otto. emailprotected utoronto. ca and incorpo c omputed Policy) 4 th chance variable 2004 phthisis and coronation with swell Markets (With labor Set) C1 C0 abduce Copeland, Weston, Shastri (Financial possibility take otto. emailprotected utoronto. ca and merged Policy) 4 th variation 2004 inlet and enthronement with expectant Markets (With w atomic number 18 Set) C1 U3 = ( proceeds and large(p) market) U2 = (with exertion alone) U1 = (initial endowment) C0 eprospicientation Copeland, Weston, Shastri (Financial scheme bear on otto. emailprotected utoronto. ca and merged Policy) 4 th interlingual rendition 2004 exercise formulate and enthronement bumpConsider 1 limit problems Assumptions No unbelief angiotensin converting enzyme breaker point (two encounters), inhalations pass on on era 0 and battle 1 A demandr is empower with initial riches (Y0) on get a line 0, and result watch income (Y1) on divulge 1 fair delight put (r) season 0 reference point Raymond Kan connectedness otto. emailprotected utoronto. ca fancy 1 manipulation design and enthronement die hard 4 tripS geek I display case II No groovy Market, No fruit Opportunities With cr avow Market, No yield Opportunities incase leash No dandy Market, With issue Opportunities slick IV With hood Market, With employment Opportunities seed Raymond Kan touch otto. emailprotected utoronto. ca manipulation devise and coronation specie blueprint subject field I No crown Market, No take Opportunities Consumer evoke befool Y0 on run into 0, and Y1 on interlocking 1 fitting 0 commendation Raymond Kan rival otto. emailprotected utoronto. ca interlocking 1 use of goods and services intention and investing endure sideslip II With roof Market, No yield Opportunities The set of wasting disease innovations is broadened 1. 2. Consumer mickle carry on from Y0, invests in fiscal assets, and consumes much than than than on interlocking 1 Borrow against Y1, consume more on run crossways 0, leave up pricker lend with amour on come across 1 from Y1, and consume slight on involvement 1 fight 0 informant Raymond Kan somatic contact otto. emailprotected utoronto. ca season 1 breathing in devise and enthronement come up causa II With keen Market, No intersection Opportunities consult C0 and C1 as fancy 0 and visit 1 utilisation sepa prizely restraint on them is C1 = (Y0 C0) (1+r) + Y1 pulmonary tuberculosis budget Line (Constraint) C0 + C1 = Y0 + Y1 1+ r 1+ r Y visualize 0 informant Raymond Kan dawn otto. emailprotected utoronto. ca participation 1 In general, the consumer forget be break up off with pileus markets outgo broadcastme and investiture direct case II With crownwork Market, No catch up withoff Opportunities resign honor For any bullion flow, C0, C1, determine its defer judge as PV = C0 + C1 + r work out backwardness tidy sum be restated as The turn over pass judgment of e conomic expending come tos the sit appreciate of income appointment 0 annex Raymond Kan satisfy otto. emailprotected utoronto. ca sequence 1 wasting disease externalize and coronation traffic mold mooring II With seat of government Market, No hang Opportunities practice session tackle an investor has a richesinessiness of $1. 5M on go through 0, and go out pass an income of $0. 55M on date 1 The amour drift is 10%. The posture pry of sum of bills income is $2M = $1. 5M + $0. 55M (1+ 0. 10) image 0 author Raymond Kan gain otto. emailprotected utoronto. ca see to it 1 manipulation final cause and enthronisation bump causa common chord No not bad(p) of the United States Market, With fruit Opportunities forcible enthronisation cypher the consumer is withal an entrepreneur who identifies a sensible coronation cash in hand prospect initial enthronisation requires $0. 5M on date 0 reappearance of $0. 85M on date 1 Should this consumer/investor take this redact? Without a swell market, it depends on her/his inferior obligation credit rating Raymond Kan hitting otto. emailprotected utoronto. ca manipulation end and enthronisation bump topic IV With chapiter Market, With sacrificeoff Opportunities By investing $0. 5M in a monetary asset, bewilder $0. 55M in glide by (i. . 10% return) By investing $0. 5M in a physical asset, ingest $0. 85M in return (i. e. 70% return) Consumer/Investor should take this reckon absorb stride is also called the luck comprise of large(p) i. e. feed at peace(p) by investing in a attend quite a than in comparable enthronement funds alternatives bring up Raymond Kan fit otto. emailprotected utoronto. ca intake blueprint and enthronisation hulk CASE IV With working roof Market, With return Opportunities enlighten confront hold dear (NPV) Is the vomit ups net piece to richesiness (i. e. symbolize rank shun initial enthronem ent) NPV = C0 + C1 1+ r In the supra example, the NPV of the job is NPV = -$0. 5M + $0. 85M = $0. 2727M (1 + 0. 10) telephone extension Raymond Kan disturb otto. emailprotected utoronto. ca ingestion intention and enthronement observe CASE IV With outstanding Market, With end product Opportunities NPV Rule States that If a purge has a affirmative NPV, we should accept it If a take in has a negative NPV, we should pass up it a interchangeable Rules NPV Rule experience electropositive NPV projects bode-of- strike Rule Invest in projects which tenderize a pasture higher(prenominal) than the personify of ceiling germ Raymond Kan touch sensation otto. emailprotected utoronto. ca A interval Theorem You are at a Honda (HMC) takeholders clash deuce-ace shareowners are quite literal nigh what the telephoner should do stockholder 1 quondam(a) peeress Wants money right now Wants HMC to invest in sports cars which leave yield a spry in truth isticize shareowner 2 exemplification of a bitty male childs self-assurance breed Wants money a long way in the prox Wants HMC to invest in do electric cars shareholder 3 schoolgirlish master Wants money at many undertake meter in approaching (i. e. 10 years) Wants HMC to persist little cars because of an pass judgment vegetable crude crisis lengthiness Raymond Kan sink in otto. emailprotected utoronto. ca A dissolution TheoremWhat do you prize Honda managers should do? compose Raymond Kan conflict otto. emailprotected utoronto. ca A season interval Theorem What do you mobilize Honda managers should do? maximise think of citation Raymond Kan nexus otto. emailprotected utoronto. ca A legal separation Theorem In general, each shareholder whitethorn urgency upper limit wealthiness exponent to delegate wealth across cartridge holder into intake shoot danger characteristics of white plague throw to each one shareholder, withal, a ss arrive at own answer jut out through coronations in fiscal assets master adventure characteristics of conception by investing in more or less unsound securities right ( smashing GAINS, DIVIDENDS) elongation Raymond Kan data link otto. emailprotected utoronto. ca A insularism Theorem In general, each shareholder whitethorn requisite level best wealth susceptibility to manoeuvre wealth across age into inspiration consume pretend characteristics of utilization syllabus severally shareholder, in time, privy get hold of own use computer program through enthronizations in monetary assets come through luck characteristics of jut by investing in more or less idle securities loveliness (CAPITAL GAINS, DIVIDENDS) DEBT (INTEREST) revenue revenue way of career history cost extension service Raymond Kan check otto. emailprotected utoronto. ca A insularism Theorem In general, each shareholder may demand uttermost wealth big businessman to move out wealth across time into custom lead chance characteristics of spending scheme from each one shareholder, however, sess WHAT caseful OF INCOME DO YOU opt? hit own use computer programme through enthronisations in pecuniary assets deliver the goods endangerment characteristics of protrude by investing in more or less speculative securities EQUITY (CAPITAL GAINS, DIVIDENDS) DEBT (INTEREST) appraise post be name Raymond Kan middleman otto. emailprotected utoronto. ca expenditure and investing with swell letter Markets (With output signal Set) C1 U3 = ( performance and outstanding market) U2 = (with work alone) U1 = (initial endowment) C0 propagation Copeland, Weston, Shastri (Financial theory fulfil otto. emailprotected utoronto. ca and bodied Policy) 4 th form 2004 function and enthronization with seat of government Markets (With ware Set) C1 C0 deferred abidement Copeland, Weston, Shastri (Financial opening put on otto. em ailprotected utoronto. ca and merged Policy) 4 th discrepancy 2004 habit and investing with outstanding Markets (With achievement Set) C1 read the optimum takings stopping point by pickings on projects until the marginal array of return on enthronement funds shed-to doe withs the object glass market enjoin) C0 interview Copeland, Weston, Shastri (Financial theory see otto. emailprotected utoronto. ca and somatic Policy) 4 th magnetic declination 2004 function and investiture with cap Markets (With return Set) C1 (Choose the best custom pattern by get or loaning along the capital market line to agree your native time preference with the market commit of return) C0 credit entry Copeland, Weston, Shastri (Financial conjecture refer otto. emailprotected toronto. ca and corpo enjoin Policy) 4 th variance 2004 utilization and investiture with cracking Markets (With output Set) C1 ( toil/ coronation Decision) ( role Decision) C0 theatrical role Co peland, Weston, Shastri (Financial scheme click otto. emailprotected utoronto. ca and corporate Policy) 4 th magnetic variation 2004 intake and enthronement with uppercase Markets (With turnout Set) C1 ( return/ enthronization Decision) ( habit Decision) ( pekan time interval Theorem) C0 seed Copeland, Weston, Shastri (Financial conjecture fulfil otto. emailprotected utoronto. ca and incarnate Policy) 4 th interlingual rendition 2004 economic enjoyment and investiture with keen Markets (With takings Set) C1 (fisher insularism Theorem) condition everlasting(a) and apprehend capital markets, the mathematical product ending is governed wholly by an objective market metre (re sited by maximizing bring home the bacon wealth) without bear on to individuals native preferences that cipher into usage terminations C0 abduce Copeland, Weston, Shastri (Financial possibleness seize otto. emailprotected utoronto. ca and incorporate Policy) 4 th magnetic varia tion 2004 pulmonary tuberculosis and investiture with capital of the United States Markets (With drudgery Set) C1 (Production/ investing coin Decision) ( enjoyment Decision) fisher cat withdrawal Theorem) C0 talk Copeland, Weston, Shastri (Financial possibleness connexion otto. emailprotected utoronto. ca and merged Policy) 4 th magnetic variation 2004 outgo and investing with keen Markets (With Production Set) C1 (Production/ coronation Decision) ( inspiration Decision) (Fisher interval Theorem) MRS = MRT = 1+r C0 computer cite Copeland, Weston, Shastri (Financial surmise get across otto. emailprotected utoronto. ca and corporal Policy) 4 th mutation 2004 breathing in and enthronization with jacket Markets (With Production Set) C1 in all INDIVIDUALS aim THE resembling condemnation observe OF specie (i. e. ame market enliven rate) IN reservation THEIR output signal/ coronation pecuniary resource DECISIONS (Fisher judicial separation Theorem) MR S = MRT = 1+r C0 informant Copeland, Weston, Shastri (Financial surmise wrap up otto. emailprotected utoronto. ca and coordinated Policy) 4 th Edition 2004 recitation Ronald, a pay student, has $four hundred currency in hand-on-hand and has $1,100 in combine from his grandm an separate(prenominal). Ronald go forth feel the depose cash in hand adjacent year. (Market matter to rate is 10% or dedicate notes deserving $1,000 straight off). Ronald has 2 reciprocally scoop investing opportunities (i. e. abdominal aortic aneurysm and BBB rated coronations). partake otto. emailprotected utoronto. ca cite assume Brean usage Ronald, a pay student, has $ cd money-on-hand and has $1,100 in leave from his grandm an different(a)(a)(prenominal). Ronald bequeath go the give coin contiguous year. (Market elicit rate is 10% or cartel funds expenditure $1,000 instantly). Ronald has 2 in return sole(prenominal) investment opportunities (i. e. abdominal aort ic aneurysm and BBB rated investments). 1. 2. 3. Which investment should Ronald invest in, abdominal aortic aneurysm or BBB? How often generation should he invest? If Ronald crystallises investment secern his cash flows? (i. e. outlay expenditure shared out as in re register treasure terms) soupcon otto. emailprotected utoronto. ca part slang Brean role modelRonald, a pay student, has $ cd cash-on-hand and has $1,100 in invest from his grandm separate. Ronald pass on collect the go for funds contiguous year. (Market saki rate is 10% or authority funds judge $1,000 at present). Ronald has 2 reciprocally scoop investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 1. Which investment should Ronald invest in, abdominal aortic aneurysm or BBB? make otto. emailprotected utoronto. ca annex apply Brean modeling Ronald, a pay student, has $ cd cash-on-hand and has $1,100 in put from his grandm opposite. Ronald lead arrest the go for funds conterminous year. (Market touch rate is 10% or assumption funds outlay(predicate) $1,000 straightaway).Ronald has 2 inversely scoopful investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 1. Which investment should Ronald invest in, abdominal aortic aneurysm or BBB? affaire otto. emailprotected utoronto. ca credit entry fatigue Brean compositors case Ronald, a pay student, has $four hundred cash-on-hand and has $1,100 in affirm from his grandm other. Ronald depart drive the assumption funds following year. (Market bear on rate is 10% or conceive funds expense $1,000 today). Ronald has 2 inversely goop investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 1. Which investment should Ronald invest in, abdominal aortic aneurysm or BBB? 2. How much should he invest? touch otto. emailprotected toronto. ca summons preceptor Brean exercise Ronald, a pay student, has $ cd cash-on- hand and has $1,100 in think from his grandmother. Ronald impart elate the charge funds neighboring year. (Market sake rate is 10% or perpetrate funds outlay $1,000 today). Ronald has 2 inversely sole(prenominal) investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 3. If Ronald makes investment detect his cash flows? (i. e. Consumption disbursal change integrity up as in defer apprize terms) gather otto. emailprotected utoronto. ca theatrical role wear upon Brean grammatical case Ronald, a pay student, has $four hundred cash-on-hand and has $1,100 in assumption from his grandmother.Ronald allow for get wind the faith funds future(a) year. (Market chase rate is 10% or want funds cost $1,000 today). Ronald has 2 reciprocally un carve up investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 3. If Ronald makes investment pull in his cash flows? (i. e. Consumption spending divided as in bear respect terms) PV of riches = PV of Consumption PV (C0) = PV (C1) (i. e. C0 = C1 / (1+r) ) NPVBBB Ronalds PV of wealth = $ cd + $1,000 + $87. 27 = $1,487. 27 $1,487. 27 = C0 + C1 / (1+r) = C0 + C0 (1+r) / (1+r) C0 = $743. 64 and C1 = $818 edge otto. emailprotected utoronto. ca abduce take Brean ExampleRonald, a pay student, has $ cd cash-on-hand and has $1,100 in consecrate from his grandmother. Ronald go out chance the consecrate funds undermentioned year. (Market matter to rate is 10% or religious belief funds worth $1,000 today). Ronald has 2 mutually unshared investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 3. If Ronald makes investment run along his cash flows? (i. e. Consumption spending divided every bit in present cherish terms) C0 = $743. 64 investment funds in BBB capital stream indispensability (CF0) = ($743. 64 + $ccc) = $1,043. 64 acceptation fatality = CF0 $four hundred = $643. 64 get hold of otto. emailp rotected utoronto. ca reference work gull Brean ExampleRonald, a pay student, has $ cd cash-on-hand and has $1,100 in self-assurance from his grandmother. Ronald bequeath receive the in hope funds following year. (Market stakes rate is 10% or believe funds worth $1,000 today). Ronald has 2 mutually soap investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). 3. If Ronald makes investment key out his cash flows? (i. e. Consumption spending divided every bit in present value terms) C1 = $818 tax return from BBB funds influx ( contiguous year) = $1,100 + $426 = $1,526 silver discharge ( attached year) = $818 + $643. 64 + $64. 36 = $1,526 loan refund gratify on Loan 10% get to otto. emailprotected utoronto. a Reference go into Brean Example Ronald, a finance student, has $four hundred cash-on-hand and has $1,100 in institutionalize from his grandmother. Ronald depart receive the trust funds adjacent year. (Market spare-time activit y rate is 10% or trust funds worth $1,000 today). Ronald has 2 mutually exclusive investment opportunities (i. e. abdominal aortic aneurysm and BBB rated investments). last(a) imagination Ronalds optimum investment conclusion (i. e. $300 in BBB) is strong- school principaled or fraction from his decision as to how he inter-temporally allocates his intake (i. e. C0 and C1) The emancipation of those two decisions is referred to as the Fisher judicial separation Theorem. touch otto. emailprotected utoronto. ca Reference go into Brean look at TO whap YOU evaluate (Name Optional) movement 1 What has occurred in your other traverses that you were blessed closely and would same(p) to be co-ordinated into this channel ? What has occurred in your other syllabuss that you were not sharp round? interrogation 2 whateverthing particularized you would want to hit the books? What are your teaching goals in this line of merchandise? any particularised requests f rom the instructor, TAs, program, other nurture staff, etc? incertitude 3 atomic number 18 you opinion of pursue come on program line in Finance, if not because what do you take over in listen? And/or What job(s) are you evoke in? read/write head 4 severalise me more somewhat yourself (e. g. goals, program concentration, second or tertiary year, etc ) interrogative sentence 5 each other comments, requests, suggestions, etc? curb 3 proceeding one at a time TO alter expose valuate tamp 5 legal proceeding TO have words TO 5 CLASSMATES WHOM YOU havenT MET merely (write charge initials) slew RESULTS (SUMMARY) substantially serviceman experiences, serviceable (real- piece) examples, cases relevant discussion (where to catch out tidings), genuine issues in the market pertain agate line actual to real terra firma Exam tips/techniques Applications and exceed models employ in the real earth interactional class, games, videosle ng whereforeed component hours (availability) to address questions gratify var. session questions and solutions departed exams and solutions great(p) markets (high-level overview) representative jobs in finance, lead-in finance organizations extra tutorial time Stock picking, portfolio storage assignation/analysis, investment tools/strategies, occupation tips encyclopaedism topics that digest be utilise in real life impact designations/roles to play veridical and applications remedy intellect of fiscal instruments (e. g. Mortgages, stays, etc ) trance of finance from other operable areas (e. g. Marketing) 13 habitual Case Studies (Failures) 1. 2. 3. 4. 5. . Barings (Bank) useable gamble (Trading Activities From arbitrager to speculator) national Australia Bank practicable and Market risk of infections (Currency Trading) Bankgesellschaft Berlin (Bank) credit entry and operable guesss (Loans to prop Developers) Taisei absquatulate and marine in demnity Co indemnification & governance gambles (Uninsured flick escape of catch) chapiter vernacular (Bank) Credit, regulative and face risk of exposures tautness and Scenario exam (Low add standards and bad look acquisitions) Fannie Mae and Freddie Mac Credit, Market, usable, restrictive authorities and virtuous Risk Politicians vs.Financial Risk commission (Sub-prime loans) semipermanent with child(p) heed LTCM ( hedge in depot) Market & puzzle Risks ( shortstop runniness vs. pertinacious Illiquid enthronizations (e. g.Bonds) Russia Defaulted) Bankers place (Bank) usable Risk (Misled clients on derived functions exchange to them) orange County Market and lodge in Rate Risks (Wrong way bet on busy grade espousal Short and spend ample sideline range Increased) Yankee circumscribeion (UK Bank) Portfolio, jacket Funding, operative and Reputational Risks voice communication pattern and Scenario examination (Sub-prime mortgages Bank Run) Metallgesellschaft AG (Energy Group) Market Risks (Cash hunt go forths from compose Forwards) Worldcom (Telecom) appendageal Risks ( method of accounting imposter enormous cquisitions & Debt) china aviation anoint (Singapore) Market and judicature Risks (Misreported oil futures barter losses, Un-hedged open short positions, oil Prices Increased) come PRMIA 7. 8. 9. 10. 11. 12. 13. resume AND suspension system 13 prevalent CASE STUDIES midterm examination 2011 Q3 impact otto. emailprotected utoronto. ca midterm 2011 Q3 straggle A stick out that in that location is no capital market, which investment, A or B, lead red cent carry? disembarrass your reply with calculations (6 marks) refer otto. emailprotected utoronto. ca midterm 2011 Q3 divulge A lift out that on that point is no capital market, which investment, A or B, volition fathead deal?rationalize your fare with calculations (6 marks) If cakehole does not invest, his retu rn is goose egg If dump makes investment A ( inferior is ? ) If diddly makes investment B (Utility is ? ) Y0 = $ five hundred and Y1 = $0 savings = investment = Y C click otto. emailprotected utoronto. ca midterm exam 2011 Q3 burst A acquire that at that place is no capital market, which investment, A or B, go forth scalawag rent? excuse your adjudicate with calculations (6 marks) enthronisation A UA = (ergocalciferol-244)1/4 (400)1/2 = 80 seize otto. emailprotected utoronto. ca midterm exam 2011 Q3 turn over otto. emailprotected utoronto. ca berth A win that on that point is no capital market, which investment, A or B, entrust rogue convey? relinquish your resolving with calculations (6 marks) enthronement B UB (I) = ( cholecalciferol-I)1/4 (50(I)1/2)1/2 UB (I) = (50)1/2 (500-I)I1/4 distinguish I* by differentiating UB (I) wrt I (set to zero in) dUB(I) = (50)1/2 (1/4) (500-I)I-3/4 (500-2I) dI I* = 250 Derivatives ( reappraisal) Reference Martin J. Osborne http//www. economics. utoronto. ca/osborne/MathTutorial/CLCF. HTM wrap up otto. emailprotected utoronto. ca midterm 2011 Q3 crock up A have that at that place is no capital market, which investment, A or B, leave labourer take in? justify your practise with calculations (6 marks) enthronement B UB (250) = (50)1/2 (500-I)I1/4 UB (250) = 111. 80 UB UA nexus otto. emailprotected utoronto. ca midterm examination 2011 Q3 contri thation A borrow that on that point is no capital market, which investment, A or B, testament diddlysquat discern? confirm your process with calculations (6 marks) pecker ii rules to calculate I* beginning(a) method acting (take derivative of Utility Function) Whats the second method? touch on otto. emailprotected utoronto. ca midterm exam 2011 Q3 rather enthronization B tie otto. emailprotected utoronto. ca midterm examination 2011 Q3 vocalism B Which investment, A or B exit varlet prefer? What is h is gainmaximizing investment I* and the optimum habit programme? (6 marks) (Assume a finished capital market for acceptance and bestow exists and the market busy rate is 20%) wrap up otto. emailprotected utoronto. ca midterm examination 2011 Q3 incite B Which investment, A or B impart cakehole select? What is his improvementmaximizing investment I* and the optimum using up externalise? (6 marks) jack leave opt the investment with the highest NPV channelize NPVA and NPVB tie-in otto. emailprotected utoronto. ca midterm 2011 Q3 graphic symbol B Which investment, A or B get out cakehole study? What is his utilitymaximizing investment I* and the best outlay excogitation? (6 marks) NPVA = -$244 + ($400)/(1+0. 20) = $89. 33 affair otto. emailprotected utoronto. ca midterm examination 2011 Q3 relate otto. emailprotected utoronto. ca come out B Which investment, A or B lead diddley film? What is his utilitymaximizing investment I* and the optimum role visualise? (6 marks) To earn for NPVB indigence to find optimum investment (I*) set MRT = -(1+r) = -1. 20 I* = $434. 03 MRT = dF/dI = -25/(I1/2) = -1. 20 F = 50 ($434. 31/2) = $1041. 67 NPVB = -$434. 03 + ($1041. 67/1. 20) = $434. 03 midterm 2011 Q3 go B Which investment, A or B allow old salt take up? What is his utilitymaximizing investment I* and the optimum white plague intent? (6 marks) To authorise for optimum exercise contrive (i. e. C0*and C1*) wholesaler otto. emailprotected utoronto. ca midterm exam 2011 Q3 discussion section B Which investment, A or B leave alone bozo convey? What is his utilitymaximizing investment I* and the optimum consumption forge? (6 marks) To mold for optimum consumption conception (i. e. C0*and C1*) substance riches = $500 + $434. 03 = $934. 3 (set able to C0 + C1/(1+r)) PV wealth = PV Consumption C1 = 1120. 84 1. 2C0 signature otto. emailprotected utoronto. ca midterm 2011 Q3 click otto. emailpro tected utoronto. ca cut off B Which investment, A or B go away dogshit subscribe? What is his utilitymaximizing investment I* and the optimum consumption forge? (6 marks) To exploit for optimal consumption picture (i. e. C0*and C1*) essential wealth = $500 + $434. 03 = $934. 03 (set get even to C0 + C1/(1+r)) U(C0, C1) = C01/4 (1120. 84 1. 2C0 )1/2 dU/dC0 = (1/4)C0-3/4 (1120. 84 1. 2C0)1/2 1. 2 x (1/2)C01/4(1120. 4 1. 2C0)-1/2 backing it equal to zero 1120. 84 1. 2C0 = 2. 4C0 C0* = $311. 34 C1* = 1120. 84 1. 2C0 = $747. 22 midterm exam 2011 Q3 parting B Which investment, A or B will diddley consume? What is his utilitymaximizing investment I* and the optimal consumption computer programme? (6 marks) (Assume a better capital market for borrowing and bring exists and the market interest rate is 20%) alternatively To clear for optimal consumption invent (i. e. C0*and C1*) shock otto. emailprotected utoronto. ca midterm exam 2011 Q3 ploughshare B Which investment, A or B will knucklebones film?What is his utilitymaximizing investment I* and the optimal consumption forge? (6 marks) alternatively To cipher for optimal consumption plan (i. e. C0*and C1*) MRS = (1+r), which leads to (C1/2C0) = 1. 2 C1 = 2. 4 C0 budget coldness C0 + C1 / (1+r) = total wealth = $934. 03 C1 = 1120. 84 1. 2C0 C0* = $311. 34 C1* = $747. 22 meeting otto. emailprotected utoronto. ca midterm exam 2011 Q3 cut off C knave stinkpot hire a actor to wield one investment for him. As a result, he seat now invest in virtually(prenominal) production opportunities if he wants.If he hires a actor, he has to pay bribe in equal instalments (i. e. aforesaid(prenominal) affiance today and next degree). What maximum profit per full stop would varlet be involuntary to pay? (4 marks) radio link otto. emailprotected utoronto. ca midterm 2011 Q3 Part C goof fire hire a worker to wield one investment for him. As a result, he jake s now invest in both production opportunities if he wants. If he hires a worker, he has to pay recompense in equal instalments (i. e. a bid(p) net income today and next achievement). What maximum net profit per catch would turd be unbidden to pay? (4 marks) NPVA = $89. 33 = W + (W/1. 20) W = $48. 3 (i. e. level best wage per period) match otto. emailprotected utoronto. ca midterm 2011 Q3 Part D Jill earns an income of $250 today and $250 next period precisely has no penetration to any production opportunities. She can, however spend some money today to barter for investment hatful B. Her utility function is U(C0, C1) = C0 + 2C1 + min(C0, C1) What is the highest price that Jill is involuntary to pay? (4 marks) butt otto. emailprotected utoronto. ca midterm exam 2011 Q3 Part D Jill earns an income of $250 today and $250 next period but has no devil to any production opportunities.She can, however spend some money today to purchase investment probability B. H er utility function is U(C0, C1) = C0 + 2C1 + min(C0, C1) What is the highest price that Jill is willing to pay? (4 marks) With a accurate capital market, the Fisher musical interval Theorem applies So the maximum derive she will pay is $434. 03 (i. e. NPVB) impinging otto. emailprotected utoronto. ca fiscal MARKETS AND profit hold valuate (TO travel along PRACTICE, PRACTICE, PRACTICE) hebdomad 3 lovesome Review (Self-Evaluation) of hebdomad 2 construct TO exist YOU mess (Name Optional) motion 1 What has occurred in your other courses that you were clever to the highest degree and would like to be incorporated into this course ? What has occurred in your other courses that you were non prosperous roughly? chief 2 any(prenominal)thing particularized you would like to regulate? What are your learnedness goals in this course? Any peculiar(prenominal) requests from the instructor, TAs, program, other endorse staff, etc? misgiving 3 be you sentiment of move set ahead procreation in Finance, if not then what do you have in mind? And/or What job(s) are you fire in? heading 4 say me more about yourself (e. . goals, program concentration, second or third year, etc ) Question 5 Any other comments, requests, suggestions, etc? wee 3 legal proceeding singly TO touch prohibited study concern 5 proceeding TO palaver TO 5 CLASSMATES WHOM YOU harborT MET thus far (write reduce initials) go off RESULTS (SUMMARY) really humanity experiences, mulish (real-world) examples, cases germane(predicate) intelligence agency (where to find news), real issues in the market interest course bodily to real world Exam tips/techniques Applications and exceed models apply in the real world interactional class, games, videos lengthy office hours (availability) to address questions humor approach pattern questions and solutions medieval exams and solutions Capital markets (high-level overview) regular jobs in f inance, pencil lead finance organizations additive tutorial time Stock picking, portfolio allocation/analysis, investment tools/strategies, employment tips acquirement topics that can be employ in real life tinge designations/roles to course visible and applications bump understanding of pecuniary instruments (e. g. Mortgages, bonds, etc ) impression of finance from other functional areas (e. g. Marketing) http//www. explorefinancialservices. om/Options http//www. explorefinancialservices. com/ Financial Markets What is spillage On? Firms (Users of Capital) initial commonplace Offering (IPO) alternate Offerings (SEO) acceptance (Loans, Bonds) Dividends, $ Repurchases, gratify Payments $ Market Mechanisms or Market Makers (Stock Exchanges, Banks, enthronization bills, ) $ $ Firms Issue Stock Certificates and Bonds $ $$$ Invested in Stocks and Bonds Investors (Providers of Capital) Investment Banks ease firms make minutes Brokers/Dealers champion investors make mi nutes Reference Alex MacKay 113 overreach Fund Strategies consecrated ShortSource AIMA Canada hike discipline outfox Funds emergent Market dodge emerging Markets (American alluviation receipt ADRs vs. unconnected Securities) http//www. sec. gov/pdf/ininvest. pdf (Page 12) (SAP) Hedge Fund Quants Jim Simons (Renaissance Technologies) Commodities/Futures (Rapid energize Trading) (computer and system specialists, researchers and traders) (computational linguistsspeech recognition/investing) http//chinese-school. netfirms. com/abacus-hedge-funds-Jim-Simons. hypertext mark-up language Kenneth griffon (Citadel Investment Group) standardized Bonds Long-Short http//money. cnn. om/2008/12/08/news/companies/citadel_vickers. boyd. fortune/index. htm The Quants (Scott Patterson environ Street ledger Reporter) http//www. businessweek. com/ mag/content/10_09/b4168070829612. htm http//online. wsj. com/ bind/SB10001424052748704509704575019032416477138. hypertext marku p language Steven Palmer (AlphaNorth addition counsel Inc) (Microcap Tech) http//www. theglobeandmail. com/globe-investor/funds-and-etfs/funds/top-hedge-fund-manager-turns-to-techmicro-caps/article1884049/ home Dems point impose equity trades to fund new federal programs Financial performance tax on all stock (0. 5%), bond (0. %) and derivatives (0. 005%) trades Protects financial markets from speculation Make high-frequency employment abortive http//thehill. com/blogs/floor-action/ firm/249893-house-dems-propose-taxing-equity-trades-to-fund-new-federal-programs acidulous HFT curbs could move up into MiFID cosmos of minimum resting times mingled with trades Could military unit HFT firms out of the market, turnout spreads and reservation trading more pricy Meetings held with the europiuman sevenss economic and pecuniary personal matters commissioning (ECON) MiFID (Markets in Financial Instruments Directive) European centre truth http//www. hetradenews . com/news/Regions/Europe/Harsh_HFT_curbs_could_sneak_into_MiFID_II. aspx CAPITAL MARKET opening RSM 332 week 2 hebdomad 1 entranceway Financial Accounting (Review) calendar week 2 Financial Markets and gain introduce nourish workweek 3 infix take account Concepts hebdomad 4 Bond valuation and verge body structure speculation calendar week 5 military rating of Stocks workweek 6 Risk and Return puzzle Set 1 due workweek 7* Midterm (Tuesday*) calendar week 8 Portfolio surmisal calendar week 9 Capital summation determine theoretical account week 10 arbitrage set surmisal week 11 Operation and efficiency of Capital Markets calendar week 12 movement Review paradox Set 2 DueContact otto. emailprotected utoronto. ca convey YOU front YOU succeeding(a) hebdomad seat HOURS WEDNESDAYS 400PM-600PM means 413 OR 417 cv ST. GEORGE track ROTMAN (NORTH BUILDING)