Finance 3050 u of u

Chapter 6 - Equity Valuation

What is meant by intrinsic valuation?

What is meant by dividend discount models?

What assumptions about dividends and dividend growth are necess

ary to apply the dividend

growth model (a.k.a. Dividend Discount Model or Gordon growth m

odel)?

How can current stock value be estimated when there is no divid

end?

How can P/E be used to project an expected future price?

Know how to calculate

:

Value based on constant, sustainable dividend growth (DDM, or G

ordon growth model)

Dividend growth rate, price, or di

scount rate from price and th

e DDM

Value based on two-stage dividend growth

Expected future price based on P/E and expected earnings growth

;

Chapter 7 - The Efficient Market

s Hypothesis (no calculations)

What is market efficiency?

What should make markets efficient?

What are the three forms of the Efficient Markets Hypothesis (E

MH)?

How is the weak form a subset of the semi-strong form?

Why are all forms of the EMH true if the strong form is true?

What can make markets inefficient?

What is technical analysis? Why should technical analysis not w

ork? Why will patterns self-

destruct in an efficient market?

If technical analysis does not work, why are so many people doi

ng it?

What is fundamental analysis?

How can markets be efficient and fundamental analysis be worthw

hile at the same time?

Is there empirical analysis that does not support the semi-stro

ng form of the EMH?

Does this evidence prove that the semi-strong form does not hol

d?

Why can't market efficiency be proved or disproved in any form?

What is an excess return? What is a fair rate of return? How

are excess returns measured?

If markets are efficient, should portfolios be selected at rand

om? Why not?

Under what forms of the EMH can insiders still make excess retu

rns, and how?

Does the market appear to be strong-form efficient? Why or why

not?

Know how to calculate from Ch. 7:

No calculations

Chapter 9 - Interest Rates

What is meant by term structure of interest rates?

What is a yield curve?

Why do we typically use U.S. Treasury securities to construct a

yield curve?

What various shapes may a yield curve have?

Which shapes are considered "normal" and "inverted?"

What is the

Expectations Theory

that may explain the term structure of interest rates?

What are the implications of vari

ous shapes of the yield curve

under the Expectations Theory?

What is a spot interest rate?

What is a forward rate?

How are forward rates and future

spot rates related under the e

xpectations theory?

What are the Maturity Preference Theory and the Segmented Marke

ts Theory?

how to calculate:

One-year forward rates from current term structure