Corporate governance is the set of rules that control a companys behavior towards its directors, managers, employees, shareholders, creditors, customers, competitors, and community. It can help control agency problems that managers may act in their own interests at the expense of stockholders

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Nominal rate is the rate stated in contracts, and quoted by banks and brokers. Periodic rate is equal to nominal rate divided by the number of compounding periods per year.

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Term structure of interest rate describes the relationship between interest rate and maturity. A graph of the term structure is called yield curve.

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The present value of a future sum decreases as the discount rate increases or the number of periods per year decreases, other things held constant.

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Two stocks can be combined to form a riskless portfolio if the correlation of -1.0. Risk is not reduced at all if the two stocks have correlation of +1.0. In general, stocks have correlation less than 1.0, so the risk is lowered but not completely eliminated.

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Portfolio provides average return but much lower risk. The key is the negative correlations among individual stocks. As more stocks are added, each new stock has a smaller risk-reducing impact on the portfolio.

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Using a regression to estimate beta, we run a regression with returns on the stock in question plotted on the Y axis and returns on the market portfolio plotted on the X axis. The intercept of the regression line, which measures relative volatility, is defined as the stocks beta coefficient, or b.

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