FinTree website link: http://www.fintreeindia.com FB Page link :http://www.facebook.com/Fin... We love what we do, and we make awesome video lectures for CFA and FRM exams. Our Video Lectures are comprehensive, easy to understand and most importantly, fun to study with! This Video was recorded during a one of the CFA Classes in Pune by Mr. Utkarsh Jain.
Views: 1142 FinTree
Why bond prices move inversely to changes in interest rate. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/bonds-tutorial/v/treasury-bond-prices-and-yields?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/bonds-tutorial/v/introduction-to-the-yield-curve?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: Both corporations and governments can borrow money by selling bonds. This tutorial explains how this works and how bond prices relate to interest rates. In general, understanding this not only helps you with your own investing, but gives you a lens on the entire global economy. About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Views: 565173 Khan Academy
In this video on Market Risk Premium, we are going to learn what is market risk premium? formula to calculate market risk premium, calculations with practical examples. 𝐖𝐡𝐚𝐭 𝐢𝐬 𝐌𝐚𝐫𝐤𝐞𝐭 𝐑𝐢𝐬𝐤 𝐏𝐫𝐞𝐦𝐢𝐮𝐦? ------------------------------------------------------ Market Risk Premium is the difference between the expected return from the investment and the risk free rate. 𝐌𝐚𝐫𝐤𝐞𝐭 𝐑𝐢𝐬𝐤 𝐏𝐫𝐞𝐦𝐢𝐮𝐦 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 ------------------------------------------------------ Below is the formula to calculate market risk premium. 𝗠𝗮𝗿𝗸𝗲𝘁 𝗥𝗶𝘀𝗸 𝗣𝗿𝗲𝗺𝗶𝘂𝗺 𝗙𝗼𝗿𝗺𝘂𝗹𝗮 = 𝗘𝘅𝗽𝗲𝗰𝘁𝗲𝗱 𝗥𝗲𝘁𝘂𝗿𝗻 – 𝗥𝗶𝘀𝗸-𝗙𝗿𝗲𝗲 𝗥𝗮𝘁𝗲 𝐑𝐞𝐚𝐥 𝐌𝐚𝐫𝐤𝐞𝐭 𝐑𝐢𝐬𝐤 𝐏𝐫𝐞𝐦𝐢𝐮𝐦 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 ---------------------------------------------------------------- Real Market Risk Premium formula = (1 + Nominal Rate / 1 + Inflation Rate) – 1 𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐌𝐚𝐫𝐤𝐞𝐭 𝐑𝐢𝐬𝐤 𝐏𝐫𝐞𝐦𝐢𝐮𝐦 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐢𝐨𝐧 --------------------------------------------------------------------------------- Here in the below given example, we have two investments and we have also the information for expected return and risk free rate. Expected Return for the Investment 1 = 20% Expected Return for the Investment 2 = 21% Risk free rate for the Investment 1 = 8% Risk free rate for the Investment 2 = 8% Now by using the formula we will calculate the Market Risk Premium Market Risk Premium Formula = Expected Return – Risk-Free Rate Investment 1 = 20% - 8% Market Risk Premium for Investment 1 = 12% Investment 2 = 21% - 8% Market Risk Premium for Investment 2 = 13% To know more about the Market Risk Premium, you can go this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞:- https://www.wallstreetmojo.com/market-risk-premium/ Subscribe to our channel to get new updated videos. Click the button above to subscribe or click on the link below to subscribe - https://www.youtube.com/channel/UChlNXSK2tC9SJ2Fhhb2kOUw?sub_confirmation=1
Views: 545 WallStreetMojo
ZACH DE GREGORIO, CPA www.WolvesAndFinance.com Discussion of the theoretical concept of the "Risk Free Rate." This also provides an explanation of why people use US Treasuries as the Risk Free Rate and why so many people watch the Yield Curve for US Treasuries. The Risk Free Rate is a theoretical concept that stands for the one investment opportunity that is the most risk free. It is not entirely without risk. It is finding the rate of the most risk free opportunity, because this sets the benchmark for your financial analysis. Every opportunity then exists on a spectrum of risk, starting at the risk free rate. How you use this on a practical level, is you would use US treasuries. The US economy is very large, consistent economy, and is considered as the least risky alternative. Government securities are considered less risky than companies. Governments generally don’t go bankrupt (with a few notable exceptions). Government securities are based on the productivity of a country’s people, who pay taxes which pay the interest on bonds. If the government budget ever gets into trouble they can raise taxes which makes it a low risk investment. This is a generalization and I am not hyping US treasuries. The goal is to pick some security to use as a benchmark for the risk free rate. The point is that everything is interrelated in finance. As the risk free rate moves up and down, it impacts everything else in finance. Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.
Views: 3914 WolvesAndFinance
A risk premium is the return in excess of the risk-free rate of return an investment is expected to yield; an asset's risk premium is a form of compensation for investors who tolerate the extra risk, compared to that of a risk-free asset, in a given investment. The government borrows money by issuing bonds in different forms. The ones we will focus on are the Treasury bills. These have the shortest time to maturity of the different government bonds. Because the government can always raise taxes to pay its bills, the debt represented by T-bills is virtually free of any default risk over its short life. Thus, we will call the rate of return on such debt the risk-free return, and we will use it as a kind of benchmark.
Views: 841 Farhat's Accounting Lectures
OMG wow! I'm SHOCKED how easy clicked here http://www.MBAbullshit.com for CAPM or Capital Asset Pricing Model. This is a model applied to indicate an investor's "expected return", or how much percentage profit a company investor ought to logically demand to be a "fair" return for making investments into a company. http://mbabullshit.com/blog/2011/08/06/capm-capital-asset-pricing-model/ To find this, yet another question can be queried: Just how much is the sound "decent" percentage % profit that a financier should probably receive if he invests in a business (having comparatively high risk) in contrast to putting his money in government bonds which might be regarded to be "risk free" and instead of putting his hard earned cash in the general share market presumed to offer "medium" risk? Visibly, it is almost only "fair" that in fact the investor receives a gain higher compared to the government bond percentage (due to the reason that the solitary enterprise possesses higher risk). It's moreover only just that he should expect a return larger than the broad stock exchange yield, because the specific business enterprise has higher risk compared to the "medium risk" general stock market. So just as before,how much exactly should this investor fairly receive as a smallest expected return? This is where the CAPM Model or Capital Asset Pricing Model comes in. The CAPM Formula includes all these variables simultaneously: riskiness of the individual firm depicted by its "beta", riskiness of the universal stock market, rate of interest a "risk free" government bond would give, as well as others... and then spits out an actual percent which your investor "should be allowed" to take for investing his or her hard earned money into this "riskier" single firm. This particularly exact percent is known as the "expected return", given that it can be the yield that he should "expect" or require to obtain if he invests his hard earned cash into a specific firm. This precise percentage is known as the "cost of equity". The CAPM Model or CAPM Formula looks something like this: Expected Return = Govt. Bond Rate + (Risk represented by "Beta")(General Stock Market Return --Govt. Bond Rate) Utilizing this formula, you are able to see the theoretically exact rate of return theindividual business enterprise investor ought to reasonably expect for his or her investment, if the CAPM Model or Capital Asset Pricing Model is to be held. http://www.youtube.com/watch?v=LWsEJYPSw0k What is CAPM? What is the Capital Asset Pricing Model?
Views: 517655 MBAbullshitDotCom
This is a brief introduction to how we think about the term structure of interest rates currently.
Views: 961 Jonathan Kalodimos, PhD
Inflation and real and nominal return. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/inflation-tutorial/real-nominal-return-tut/v/calculating-real-return-in-last-year-dollars?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/inflation-tutorial/inflation-scenarios-tutorial/v/hyperinflation?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: If the value of money is constantly changing, can we compare investment return in the future or past to that earned in the present? This tutorial focuses on how to do this (another good tutorial to watch is the one on "present value"). About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Views: 176227 Khan Academy
This CFA Level I video covers concepts related to: • Federal Reserve's Interest Rate Policy Tools • U.S Treasury Yield Curve • Yield Curve Shapes • Term Structure Theories • Treasury Spot Rates • Yield Spreads Measures For more updated CFA videos, Please visit www.arifirfanullah.com.
Views: 29964 IFT
Pure expectations says the long spot rates predict future spot rates (i.e., the forward rate is an unbiased predictor of future spot rates). "Liquidity Preference" adds a RISK PREMIUM: investors in longer maturities demand compensation for maturity risk (e.g., uncertainty, greater duration/interest rate risk). "Preferred habitat" adds the technical factor of supply/demand.
Views: 33720 Bionic Turtle
Premium Course: https://www.teachexcel.com/premium-courses/68/idiot-proof-forms-in-excel?src=youtube Excel Forum: https://www.teachexcel.com/talk/microsoft-office?src=yt Excel Tutorials: https://www.teachexcel.com/src=yt This tutorial will show you how to calculate bond pricing and valuation in excel. This teaches you how to do so through using the NPER() PMT() FV() RATE() and PV() functions and formulas in excel. To follow along with this tutorial and download the spreadsheet used and or to get free excel macros, keyboard shortcuts, and forums, go to: http://www.TeachMsOffice.com
Views: 187559 TeachExcel
In today’s video, we learn about calculating the cost of debt used in the weighted average cost of capital (WACC) calculation. This is part of the DCF insights series for more advanced students but it offers valuable insights about the assumptions used in the model. Like many other segments of the discounted cash flow (DCF) model, the cost of debt is very important. The four methods covered in the video are; - Yield to maturity (YTM) approach - Debt rating approach - Synthetic Rating Approach - Interest on Debt Approach Link to the country default spread and risk premium database; http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html Link to the bond profile for Apple Inc used in the video; http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=aapl&country=arg Link to an amazing presentation summarizing the DCF Model by Aswath Damodaran; http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/basics.pdf Please like and subscribe to my channel for more content every week. If you have any questions, please comment below. For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 5686 FinanceKid
This video will show you how to calculate the bond price and yield to maturity in a financial calculator. If you need to find the Present value by hand please watch this video :) http://youtu.be/5uAICRPUzsM There are more videos for EXCEL as well Like and subscribe :) Please visit us at http://www.i-hate-math.com Thanks for learning
Views: 310205 I Hate Math Group, Inc
interest rates levels, nominal interest rates, determinants of interest rates, quoted interest rates, nominal interest rates, real interest rates,risk-free interest rates, real risk-free interest rates, nominal risk-free interest rates, quoted risk-free interest rates, inflation, premium, risk premium, inflation premium, purchasing power, purchasing power premium, default risk, default risk premium, liquidity risk. liquidity premium, maturity risk, maturity risk premium, volatility risk, price risk, interest rate risk, expected inflation, fungible, fungibility, marketable, marketability, reinvestment risk, TIPS, calculation risk, inflation-reporting risk, risk-free bonds, default-risk bonds, currency denomination.
Views: 28343 Krassimir Petrov
This Bloomberg video is prepared by Dr Anson Wong (AF), Dr Derek Yim (AF), and Mr William Ho (LIB) from the Hong Kong Polytechnic University, with funding support from UGC Teaching & Learning Project on enhancing information literacy in Hong Kong higher education through the development and implementation of shared interactive multimedia courseware (IL Project) from year 2016-2018.
Views: 1347 Pao Yue-kong Library
Yield to maturity (YTM, yield) is the bond's internal rate of return (IRR). It is the rate that discounts future cash flows to the current market price. For more financial risk management videos, visit our website at http://www.bionicturtle.com
Views: 226493 Bionic Turtle
Hi Guys, This video will show you how to find the expected return and risk of a single portfolio. This example will show you the higher the risk the higher the return. Please watch more videos at www.i-hate-math.com Thanks for learning !
Views: 216920 I Hate Math Group, Inc
The Equity Risk Premium is commonly used to forecast future stock-market returns from the current yield on government bonds and the historical average return of the stock market. But the relation is not that simple as demonstrated on the S&P 500 stock-market index. Monte Carlo Simulation in Financial Valuation Pedersen, M.E.H., Hvass Laboratories Report HL-1302, 2013 http://ssrn.com/abstract=2332539
Views: 764 Hvass Laboratories
Given four inputs (price, term/maturity, coupon rate, and face/par value), we can use the calculator's I/Y to find the bond's yield (yield to maturity). For more financial risk videos, visit our website! http://www.bionicturtle.com
Views: 139849 Bionic Turtle
2018 Reading 36 2019 Reading 35 This CFA exam prep video Costs of the different sources of capital - Cost of debt - Cost of preferred stock - Cost of common equity Capital asset pricing model Dividend discount model Bond yield plus risk premium approach For the COMPLETE SET of 2018 Level I Videos sign up for the IFT Level I FREE VIDEOS Package: https://ift.world/free Subscribe now: http://www.youtube.com/user/arifirfanullah?sub_confirmation=1 For more videos, notes, practice questions, mock exams and more visit: https://www.ift.world/ Visit us on Facebook: https://www.facebook.com/Pass.with.IFT/
Views: 15383 IFT
This short lecture will present the financial definition of interest and discuss the factors that affect nominal interest rates; including inflation, default risk, maturity risk (yield curve) and liquidity risk. Learning business English is like learning a new language.
Views: 12953 etramway
We started this class by tying up the last loose ends with risk free rates: how to estimate the risk free rate in a currency where there is no default free entity issuing bonds in that currency and why risk free rates vary across currencies. The key lesson is that much as we would like to believe that riskfree rates are set by banks, they come from fundamentals - growth and inflation. I have a post on risk free rates that you might find of use: http://aswathdamodaran.blogspot.com/2015/04/dealing-with-low-interest-rates.html The rest of today's class was spent talking about equity risk premiums. The key theme to take away is that equity risk premiums don't come from models or history but from our guts. When we (as investors) feel scared or hopeful about everything that is going on around us, the equity risk premium is the receptacle for those fears and hopes. Thus, a good measure of equity risk premium should be dynamic and forward looking. We looked at three different ways of estimating the equity risk premium -a survey premium, a historical premium and an implied premium, and how to extend the approach to estimating risk premiums in other markets. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr19/session6slides.pdf Post Class Test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6test.pdf Post Class Test Solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6soln.pdf
Views: 2552 Aswath Damodaran
OMG wow! Clicked here http://mbabullshit.com I'm shocked how easy, bond valuation video.. What is a Bond? Basically, a bond is a certificate which proves that a company borrowed money from you and now owes you money. Owning a bond is a way to earn interest payments instead of putting your money in a bank. Therefore, if a bond can give you high interest coupon payments compared to bank interest payments, a bond value should be high. On the other hand, if a bond will give you small coupon payments compared to bank interest, the bond value should be low. A bond can be bought either from the original company which issues the bond, or from people who already bought the bond from the corporation, but who want to sell the bond before it expires because they don’t want to wait too long before they get back their original investment So to find the theoretical value of a bond, we need to think about the bond’s interest coupon payments compared to bank interest payments, the bond’s face value, and the length of time before maturity when you get back the full face value of the bond. Sears Bond photo credit: Tom Spree via Wikipedia Creative Commons
Views: 94330 MBAbullshitDotCom
yield, yield-to-maturity, discount bond, deep-discount bond, premium bond, zero-coupon bond, interest rate sensitivity, interest rate volatility, interest rate risk, secured vs unsecured, senior vs subordinated, Eurobonds, high-grade bonds, high-yield bonds, junk bonds, amortizing bond, callable bond, convertible bond, nominal interest rates, real interest rates, expected inflation, Fisher effect, Fisher equation, risk, risk premium, default risk, default premium, liquidity risk, liquidity premium, maturity risk, maturity premium, inflation risk, inflation premium, currency risk, currency premium, yield curve, normal yield curve, falling yield curve, inverted yield curve, rising yield curve, normal yield curve, steepening yield curve.
Views: 1407 Krassimir Petrov
We started on the question of risk free rates and how to assess them in different currencies. In particular, we noted that government bonds are not always risk free and may have to be cleansed of default risk. The rest of today's class was spent talking about equity risk premiums. The key theme to take away is that equity risk premiums don't come from models or history but from our guts. When we (as investors) feel scared or hopeful about everything that is going on around us, the equity risk premium is the receptacle for those fears and hopes. Thus, a good measure of equity risk premium should be dynamic and forward looking. We looked at two different ways of estimating the equity risk premium. 1. Survey Premiums: I had mentioned survey premiums in class and two in particular - one by Merrill of institutional investors and one of CFOs. You can find the Merrill survey on its research link (but you may be asked for a password). You can get the other surveys at the links below: CFO survey: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2422008 Analyst survey: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2450452 2. Historical Premiums: We also talked about historical risk premiums. To see the raw data on historical premiums on my site (and save yourself the price you would pay for Ibbotson's data...) go to updated data on my website: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/data.html Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfUGspr16/Session6.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6atest.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session6asoln.pdf
Views: 4761 Aswath Damodaran
The video covers first part ( out of two) of Cost of Capital, Reading 37 of CFA level I This video provides information about the following : 1. The weighted average cost of capital (WACC) . 2. Affect of taxes on cost of capital from different capital sources. 3. Alternative methods of calculating the weights used in the WACC, including the use of the company's target capital structure. 4. The marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget. 5. The marginal cost of capital's role in determining the net present value of a project. 6. The cost of fixed rate debt capital using the yield-to-maturity approach and the debt -rating approach. 7. The cost of noncallable, nonconvertible preferred stock. 8. The cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach. 9. The beta and cost of capital for a project. 10. The country equity risk premium in the estimation of the cost of equity for a company located in a developing market. 11. The marginal cost of capital schedule. 12. The correct treatment of flotation costs.
Views: 15006 FinTree
FinTree website link: http://www.fintreeindia.com FB Page link :http://www.facebook.com/Fin... These video series covers the following key area: -the weighted average cost of capital (WACC) of a company; -how taxes affect the cost of capital from different capital sources; -the use of target capital structure in estimating WACC and how target capital structure weights may be determined; -how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget; -the marginal cost of capital’s role in determining the net present value of a project; -the cost of debt capital using the yield-to-maturity approach and the debt-rating approach; - the cost of noncallable, nonconvertible preferred stock; -the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach; -the beta and cost of capital for a project -uses of country risk premiums in estimating the cost of equity; -the marginal cost of capital schedule, explain why it may be upward-sloping with respect to additional capital, and calculate and interpret its break-points; - the correct treatment of flotation costs. We love what we do, and we make awesome video lectures for CFA and FRM exams. Our Video Lectures are comprehensive, easy to understand and most importantly, fun to study with! This Video lecture was recorded by our popular trainer for CFA, Mr. Utkarsh Jain, during one of his live CFA Level I Classes in Pune (India).
Views: 2544 FinTree
Real world example of the the CAPM using Microsoft Excel and regression analysis. For more information visit www.calgarybusinessblog.com
Views: 127769 Matt Kermode
What do I do? Full-time independent stock market analyst and researcher: https://sven-carlin-research-platform.teachable.com/p/stock-market-research-platform Check the comparative stock list table on my Stock market research platform under curriculum preview! I am also a book author: Modern Value Investing book: https://amzn.to/2lvfH3t More about me and some written reports at the Sven Carlin blog: https://svencarlin.com Stock market for modern value investors Facebook Group: https://www.facebook.com/groups/modernvalueinvesting/ As an investor it is extremely important to keep an eye on bond yields as stock valuations depend on their risk premium. The higher interest rates are the lower are stock values. In this video we discuss treasury yields, what is the market's perception about them and how to position yourself and your portfolio.
Views: 1028 Invest with Sven Carlin, Ph.D.
Download Excel workbook http://people.highline.edu/mgirvin/ExcelIsFun.htm Learn Interest Rate Risk: 1. The Longer The Maturity, The More YTM Affects Bond Price 2. The Lower The Coupon Rate, The More YTM Affects Bond Price
Views: 12795 ExcelIsFun
(Schwab Bond Market Today 002) Last time Kathy spoke about the recent jump in bond yields and why we think some of it has to do with a rise in the risk premium for inflation that was held down by the Federal Reserve’s bond buying program. But what she has noticed is that hasn’t necessarily happened in other markets – like the corporate bond market. On this week’s episode of Bond Market Today, Kathy is joined by Collin Martin to discuss why that might be the case. Subscribe to our channel: https://www.youtube.com/charlesschwab Click here for more insights: http://www.schwab.com/insights/ (0218-8BL4)
Views: 3639 Charles Schwab
Bond value with annual vs semiannual coupons, current yield, premium bond / discount bond / bond selling at par; interest rate risk; bond yield to maturity (YTM) with annual vs semiannual coupons; bond types by issuer and coupon structure; break-even tax rate for taxable and non-taxable bonds; Fisher effect (nominal rate = inflation rate + real rate); term structure of interest rates
Views: 105 Teach me finance
You read about it a lot in the business pages, and it sounds super complicated. But the yield curve is dead easy to read. Especially if you've every played chutes and ladders (or, snakes and ladders in the UK). Paddy Hirsch explains. Subscribe to our channel! https://youtube.com/user/marketplacevideos
Views: 62120 Marketplace APM
What is COST OF EQUITY? What does COST OF EQUITY mean? COST OF EQUITY meaning - COST OF EQUITY definition - COST OF EQUITY explanation. Source: Wikipedia.org article, adapted under https://creativecommons.org/licenses/by-sa/3.0/ license. In finance, the cost of equity is the return (often expressed as a rate of return) a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded. Just as landlords seek rents on their property, capital providers seek returns on their funds, which must be commensurate with the risk undertaken. Firms obtain capital from two kinds of sources: lenders and equity investors. From the perspective of capital providers, lenders seek to be rewarded with interest and equity investors seek dividends and/or appreciation in the value of their investment (capital gain). From a firm's perspective, they must pay for the capital it obtains from others, which is called its cost of capital. Such costs are separated into a firm's cost of debt and cost of equity and attributed to these two kinds of capital sources. While a firm's present cost of debt is relatively easy to determine from observation of interest rates in the capital markets, its current cost of equity is unobservable and must be estimated. Finance theory and practice offers various models for estimating a particular firm's cost of equity such as the capital asset pricing model, or CAPM. Another method is derived from the Gordon Model, which is a discounted cash flow model based on dividend returns and eventual capital return from the sale of the investment. Another simple method is the Bond Yield Plus Risk Premium (BYPRP), where a subjective risk premium is added to the firm's long-term debt interest rate. Moreover, a firm's overall cost of capital, which consists of the two types of capital costs, can be estimated using the weighted average cost of capital model. According to finance theory, as a firm's risk increases/decreases, its cost of capital increases/decreases. This theory is linked to observation of human behavior and logic: capital providers expect reward for offering their funds to others. Such providers are usually rational and prudent preferring safety over risk. They naturally require an extra reward as an incentive to place their capital in a riskier investment instead of a safer one. If an investment's risk increases, capital providers demand higher returns or they will place their capital elsewhere. Knowing a firm's cost of capital is needed in order to make better decisions. Managers make capital budgeting decisions while capital providers make decisions about lending and investment. Such decisions can be made after quantitative analysis that typically uses a firm's cost of capital as a model input.
Views: 3480 The Audiopedia
In this WACC and Cost of Equity tutorial, you'll learn how changes to assumptions in a DCF impact variables like the Cost of Equity, Cost of Debt. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You'll also learn about WACC (Weighted Average Cost of Capital) - and why it is not always so straightforward to answer these questions in interviews. Table of Contents: 2:22 Why Everything is Interrelated 4:22 Summary of Factors That Impact a DCF 6:37 Changes to Debt Percentages in the Capital Structure 11:38 The Risk-Free Rate, Equity Risk Premium, and Beta 12:49 The Tax Rate 14:55 Recap and Summary Why Do WACC, the Cost of Equity, and the Cost of Debt Matter? This is a VERY common interview question: "If a company goes from 10% debt to 30% debt, does its WACC increase or decrease?" "What if the Risk-Free Rate changes? How is everything else impacted?" "What if the company is bigger / smaller?" Plus, you need to use these concepts on the job all the time when valuing companies… these "costs" represent your opportunity cost from investing in a specific company, and you use them to evaluate that company's cash flows and determine how much the company is worth to you. EX: If you can get a 10% yield by investing in other, similar companies in this market, you'd evaluate this company's cash flows against that 10% "discount rate"… …and if this company's debt, tax rate, or overall size changes, you better know how the discount rate also changes! It could easily change the company's value to you, the investor. The Most Important Concept… Everything is interrelated - in other words, more debt will impact BOTH the equity AND the debt investors! Why? Because additional leverage makes the company riskier for everyone involved. The chance of bankruptcy is higher, so the "cost" even to the equity investors increases. AND: Other variables like the Risk-Free Rate will end up impacting everything, including Cost of Equity and Cost of Debt, because both of them are tied to overall interest rates on "safe" government bonds. Tricky: Some changes only make an impact when a company actually has debt (changes to the tax rate), and you can't always predict how the value derived from a DCF will change in response to this. Changes to the DCF Analysis and the Impact on Cost of Equity, Cost of Debt, WACC, and Implied Value: Smaller Company: Cost of Debt, Equity, and WACC are all higher. Bigger Company: Cost of Debt, Equity, and WACC are all lower. * Assuming the same capital structure percentages - if the capital structure is NOT the same, this could go either way. Emerging Market: Cost of Debt, Equity, and WACC are all higher. No Debt to Some Debt: Cost of Equity and Cost of Debt are higher. WACC is lower at first, but eventually higher. Some Debt to No Debt: Cost of Equity and Cost of Debt are lower. It's impossible to say how WACC changes because it depends on where you are in the "U-shaped curve" - if you're above the debt % that minimizes WACC, WACC will decrease. Otherwise, if you're at that minimum or below it, WACC will increase. Higher Risk-Free Rate: Cost of Equity, Debt, and WACC are all higher; they're all lower with a lower Risk-Free Rate. Higher Equity Risk Premium and Higher Beta: Cost of Equity is higher, and so is WACC; Cost of Debt doesn't change in a predictable way in response to these. When these are lower, Cost of Equity and WACC are both lower. Higher Tax Rate: Cost of Equity, Debt, and WACC are all lower; they're higher when the tax rate is lower. ** Assumes the company has debt - if it does not, taxes don't make an impact because there is no tax benefit to interest paid on debt.
Views: 119595 Mergers & Inquisitions / Breaking Into Wall Street
Bear markets explained using risk premium spreads! Today we’ll measure the current risk premium in the market. We’ll take a look at risk premium spreads and see how much longer this bull has to run before the next bear market. Make sure you review this video that explains risk premium spreads before continuing: https://youtu.be/H1ZDRzPX4_0 When the Fed lowers interest rates, it affects the risk premium of every asset class. It lowers the return on bonds and widens the spread between safer assets like cash and bonds and riskier assets like stocks. The larger spread means risk assets become more attractive relative to safe ones. And because of the lower return in safe assets, investors have to move out on the risk curve into riskier assets to maintain their returns. This causes riskier assets like stocks to get bid up, driving valuations higher. And when valuations increase, expected future returns go down. Eventually risk premium spreads get pulled really tight together. Valuations get so high that expected returns in stocks almost equal cash… but with much higher volatility. This happens during the late cycle phase of the short-term debt cycle. And by this point no one wants to hold stocks which is why we get bear markets as investors sell their stocks and allocate towards cash and bonds. In the video above we’ll use GMO’s 7 year asset class real return forecast, the inverse of the CAPE minus the rate on 10-year bonds adjusted for inflation, and the rolling 5-year average annual return to equities relative to 2-year bonds to determine the current risk premium in the market. Putting that information together we can see that we’re in the late cycle phase of this bull. But that phase lasts between 18 and 30 months. And we’re closer to the middle than the end. This puts the next bear market around 12-18 months from now. Watch the video above for more! And as always, Remember to Stay Fallible Investors! ***All content, opinions, and commentary by Fallible is intended for general information and educational purposes only.
Views: 1163 AK Fallible - Financial Entertainment
For More Visit our website - https://sfmguru.in/ Buy Rewamp & revise the entire SFM in 1 day: https://sfmguru.in/revamp-ca-final-sfm-revision-book/ Subscribe to Channel for more videos: https://www.youtube.com/channel/UCiPzkqrzDsoq-pLrloT7Fcw/featured Meaning of Bonds When a company has to raise long term debt, one of the modes of raising the funds is by issuing debentures. For all practical reasons, a debenture and a bond are one and the same. Bonds or debentures can be called financial Instruments which are contracts that give rise to a financial liability for one party (the one who issues such bonds) and a financial asset for the other party (the one who holds such bonds or debentures). Bond is a fixed income bearing security that provides interest at a definite rate to the investors. When an investor acquires a bond, he expects interest over the period and the redeemable value to be received at the maturity date or redemption date. In other word, after acquiring a bond, the investor receives a stream of cash flows. The total present value of such stream of cash flow (including the present value of redeemable value) is considered as the value of such bond. For the purpose of bond valuation the following terms must be clarified: 1. Face Value 2. Coupon Rate 3. Coupon payments 4. Issue Price 5. Market Price 6. Maturity Date 7. Redemption Price 8. Intrinsic Value 9. Callable & Puttable Bonds 10. Call Date & Call Price 11. Current Yield 12. Yield to Maturity (YTM) 13. Yield to Call (YTC) (For Callable Bonds) 14. Zero Coupon Bonds (ZCB) 15. Deep Discount Bonds (DDB) 16. Annuity Bonds 17. Bond STRIPS 18. Par Bonds, Premium Bonds and Discount Bonds 19. Convertible Bonds (OCDs & CCDs) 20. Straight Value of Convertible Bond 21. Stock Value of Convertible Bond 22. Conversion Parity Price 23. Conversion Premium 24. Clean Price & Dirty Price Issue Price of a bond is at which a new bond is priced by the issuer. Bonds can be issued at Par, Premium or Discount. Market Price of a bond indicates the price at which the bond can be bought or sold in the open market. What do you mean by Coupon Rate and Coupon Payments? Suppose a bond promises to pay interest at the rate of 8% per annum, then such rate is called “Coupon Rate”. The Coupon Rate is always applicable on the face value of the bond irrespective of its issue price or prevailing market price. For example, 9% Government of India Bonds provide half yearly interest on 30th June and 31st December. The face value of the bond is ` 1,000. The interest paid on each bond will be ` 1,000 x 9% x 6/12 = ` 45 on each of the interest payment dates. The interest payment of ` 45 during each of the months June and December are known as “Coupon Payments”. Coupon Rate is the rate of interest attached to the bond and it applies on the face value, for example, a 9% bond with face value of ` 1,000 will have interest payments of ` 1,000 x 9% = ` 90 every year. It should be noted that the interest on bonds can be payable quarterly, half yearly or annually in general. What is the Intrinsic Value of the Bond? Intrinsic value of the bond is the aggregate present value of all coupon payments and the redemption amount, determined by using a discounting rate which is expected rate of return by the investor. Maturity Date of a bond is the date at which a bond is redeemable or is due for redemption. A bond is generally redeemed at par or premium. Bond Valuation: Basic Principle As discussed earlier, the present value of the stream of cash flows including the present value of the redemption price is considered as the value of the bond and more specifically the intrinsic value of the bond or the fair market value of the bond (For this purpose the market price of the bond is always called as Actual Market Price and not Fair Market Price). In order to arrive at the present value of the stream of cash flows, a discounting rate has to be used. This discounting rate is known as the desired yield rate or required yield rate. In other words the discounting rate is the required rate of return by the investor. As generally known, increasing the discounting rate results into reduction in present value, and the decrease in discounting rate increases the present value. It can be concluded that the discounting rate or the desired yield rate and bond value are inversely related. Face Value; Intrinsic Value & Market Value: (Classification of the bond as Par, Premium or Discount bond) At the time of issue: If the bond is issued at its face value it is par bond If issued above its face value it is premium bond If issued below its face value it is discount bond Once the bond is floated: Then comparison is made among the three values: • Face Value • Intrinsic Value and • Market Value. #Bonds , #Finance , #CAFinal , #FinancialLearning , #CAFinalSFM , #StrategicFinancialManagement , #SFM ,
Views: 5501 CA Nikhil Jobanputra
My book on valuation at Amazon: [US]: https://amzn.to/2UFZOu3 [AU]: https://amzn.to/2WUe53V This video discusses four ways to calculate the firm's cost of debt, which is an essential component of corporate valuation: 1. The interest rate on existing debt [this is not a good method] 2. Peer firms' debt yields 3. Finding a risk premium from the firm's previously issued debt [not always ideal] 4. Reverse engineering the yield/ cost of debt from the firm's existing bonds. The video also contains an example from Excel of how to do this #Debt #CostOfDebt
Views: 151 Income and Capital
The beauty of alternative risk premia is that it’s performance is largely independent of specific market environments and that is so because of the broad diversification across those many different drivers of return, those many different risk premia that are out there. So the returns of a diversified risk premia portfolio does not depend on equity markets going up or bond yields going down or specific currencies moving in certain directions. Since there is so much return source available, there is actually not much strong dependence on the market direction in general, which actually give the risk premia a very nice reason to exist in a low yielding environment as we are in right now, challenging equity markets or potentially even strongly moving currency markets, in every market risk premia can potentially make money. This doesn’t mean that risk premia always make the same money in various different markets, but I think one of the beauties is that we can’t really say when risk premia is performing the best and performing the worse, we simply don’t need a specific market environment for it to perform in certain ways, it’s actually an all-weather product. To find out more visit this page: https://www.gam.com/en/systematic Source: GAM unless otherwise stated. This article is for information only and is not an invitation to invest in any GAM product. The article is intended solely for your professional use (background information) and may not be forwarded to any other person. Important legal information The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. In the United Kingdom, this material has been issued and approved by GAM London Ltd, 20 King Street, London, SW1Y 6QY, authorised and regulated by the Financial Conduct Authority.
Views: 113 GAM