What is a company worth?
Yes, the value of $1 would typically reduce over time, and the sum of the individual $1's generated every year would converge to a finite value.
but other three answers can be correct in different point of view
Why company value matters
intrinsic value => dividend accumulated in the future
book value => assets the company owns
market cap => the value of the stock on the market
The Balch Bond
When comparing these different options, assume that they cost you the same today. Say, you have 80 cents to invest, and these are the 3 options you can get for that money.
Note: Rank 1 = most preferred option, 3 = least preferred.
Bond: 债券
The value of a future dollar
US government promises 1% interest rate => today it's worthwhile to pay 0.99$ to US government for the promise that they'll return 1$ in a year
Balch Bond attracts buyers by a higher interest rate 5% <= the same as => charges less
Intrinsic value
interest rate => how risky the company is
Interest Rate and Discount Rate are terms that refer to essentially the same quantity, but are used to distinguish two slightly different use cases:
- Interest Rate is used with a given Present Value, to figure out what the Future Value would be.
- Discount Rate is used when we have a known or desired Future Value, and want to compute the corresponding Present Value.
For instance, in this case we want to sum up all future dividends - equal to a constant ($1 or FV) every year.
n = 1+IR
DR => the same concept in reinforcement learning???
Book value
ignore patents' value
Market capitalization
Why information affects stock price
future dividend decreases or increases
Compute company value
Yes, you should buy it right away!
Ignoring the intrinsic value, if you buy the entire company off the market (for $75M) and immediately sell it for its book value ($80M), you have a $5M profit right there!
Even if you are buying some stocks (instead of the whole company), the stock price is expected to increase (as it is currently undervalued).
IV >> Market cap => buy stock
IV << Market cap => short the stock
BV => lowest price => stock value should not be lower than the book value, otherwise, why not buy the company and sell every facilities?
Two questions:
How a company determines its Interest Rate?
Why intrinsic value doesnt count the patent value?
The Capital Asset Pricing Model
1960s developed => 1990s nobel prize
CAPM => led to the development of index funds and the belief that you can't beat the market
Definition of a portfolio
Portfolio return
0.75 1% + (-0.25) (-2%)
0.75% + 0.5%
= 1.25%
The market portfolio
The CAPM equation
Compare alpha and beta
CAPM vs active management
CAPM for portfolios
That's right - you want a higher β in upward markets so that you can ride the surge, but a lower β in downward markets so you don't crash as much.
Implications of CAPM
Arbitrage Pricing Theory
