(115)---FACTORS DETERMINING OPTION VALUE

Factors Determining Option Value The seller of an option gives away the good outcomes of the asset held by him to the option buyer for a pr...

(114)---STRIPS AND STRAPS

Strips and Straps You can design strategies that are variations of a straddle. Strips and straps are two such variations. A strip is a comb...

(113)---COMBINING CALL AND PUT OPTIONS AT THE SAME EXERCISE PRICE

Combining Call and Put Options at the Same Exercise Price Suppose Company Y is considering the acquisition of Company X. It has offered to ...

(112)---BUYING A SHARE AND SELLING A CALL

Buying a Share and Selling a Call A naked option is a position where the option writer does not hold a share in her portfolio that has a co...

(111)---COMBINATIONS OF PUT, CALL AND SHARE

Combinations of Put, Call and Share Options Theoretically, an investor can from portfolio of options with any assets. In practice, stock op...

(110)---PUT OPTION

Put Option A put option is a contract that gives the holder a right to sell a specific share or any other asset at an agreed exercise price...

(109)---CALL OPTION

Call Option A call option on a share or any asset is a right to buy the share at an agreed exercise price. Suppose that the current share p...

(108)---OPTIONS

Options In a broad sense, an option is a claim without any liability. It is a claim contingent upon the occurrence of certain conditions. Th...

(107)---OPTIONS AND THEIR VALUATION

Options and Their Valuation Options mean things to different people. It may refer to choice or alternative or privilege or opportunity or p...

(106)---CAPITAL ASSET PRICING MODEL AND THE OPPORTUNITY COST OF EQUITY

Capital Asset Pricing Model and the Opportunity Cost of Equity Shareholders supply capital to a form. In return, they expect to receive div...

(105)---DETERMINANTS OF BETA (2).

Determinants of Beta As we discussed above beta depend on three fundamental factors: the nature of business, the operating leverage and the...

(104)---DETERMINANTS OF BETA

Determinants of Beta We have explained that beta is the ratio of covariance between returns on market and a security to variance of the mar...

(103)---BETA ESTIMATING

Beta Estimation Net present value of an investment is the discounted value of its future cash flows. The capital asset pricing model risk r...

(102)---STEPS IN CALCULATING EXPECTED RETURN UNDER ARBITRAGE PRICING THEORY

Steps in Calculating Expected Return under Arbitrage Pricing Theory The following three steps are involved in estimating the expected retur...

(101)---CONCEPT OF RISK UNDER ARBITRAGE PRICING MODEL

Concept of Risk under Arbitrage Pricing Model The risk arising from the firm-specific factors is diversifiable. It is unsystematic risk. Th...

(100)---CONCEPT OF RETURN UNDER ARBITRAGE PRICING THEORY

Concept of Return under Arbitrage Pricing Theory In Arbitrage Pricing Theory, the return of an asset is assumed to have two components,...

(99)---THE ARBITRAGE PRICING THEORY

The Arbitrage Pricing Theory The capital asset pricing model is not always able to account for the difference is assets, returns using ...

(98)---LIMITATIONS OF CAPITAL ASSET PRICING MODEL

Limitations of Capital Asset Pricing Model Capital asset pricing model has the following limitations, It is based on unrealistic assu...

(97)---IMPLICATIONS AND RELEVANCE OF CAPITAL ASSET PRICING MODEL

Implications and Relevance of Capital Asset Pricing Model Capital asset pricing model (CAPM) based on a number of assumptions. Given th...

(96)---PORTFOLIO THEORY AND ASSET PRICING MODELS

Portfolio Theory and Asset Pricing Models The portfolio is a bundle or a combination of individual asset or securities. The portfolio pr...

(95)---NORMAL DISTRIBUTION AND STANDARD DEVIATION

Normal Distribution and Standard Deviation The normal distribution is a smooth, symmetric, continuous, bell shaped curve as shown. The ...

(94)---EXPECTED RETURN AND RISK

Expected Return and Risk Instead of using historical data for calculating return and risk, we may use forecast ed data. Suppose you ar...

(93)---HISTORICAL CAPITAL MARKET RETURNS

Historical Capital Market Returns What rates of returns on shares and other financial instructions have investors earned? You can use i...

(92)---RISK OF RATES OF RETURN

Risk of Rates of Return The variability of rates of return may be defined as the extent of the deviations or dispersion of individual r...

Risk and Return in Finance: Measures, Relationship and Examples

Return is the reward from an investment, while risk is the uncertainty surrounding that return. Finance decisions compare expected return wi...

(90)---EQUITY CAPITALIZATION RATE

Equity Capitalization Rate In our previous posts we discussed how the present value of a share can be calculated, after that we must kn...

(89)---VALUATION OF ORDINARY SHARES

Valuation of Ordinary Shares Valuation of ordinary shares is relatively more difficult, because The rate of dividend on ordinary shar...

(88)---VALUATION OF PREFERENCE SHARES

Valuation of Preference Shares A company may issue two types of shares, Preference shares. Ordinary shares. Preference shares hav...

(87)---DEFAULT RISK AND CREDIT RATING

Default Risk and Credit Rating Default risk is the risk that a company will default on its promised obligations to bond holders. Bondhol...

(86)---THE TERM STRUCTURE OF INTEREST RATES

The Term Structure of Interest Rates There are several interest rates in practice, both companies and the government offer bonds with d...

(85)---BOND VALUATION AND CHANGES IN INTEREST RATE

Bond valuation and Changes in interest rate The value of the bond declines as the market interest rate increases, bond values decline...

Bond and Share Valuation: Formulas & Examples

Bond and share valuation estimates what a financial security is worth today by discounting the cash flows investors expect to receive. The ...

(83)---VALUATION.

Valuation Concepts- value and return. Most financial decisions affect the firm’s cash flows in different time periods. The recognitio...

(82)---NATURE OF FINANCIAL MANAGEMENT.

Nature of financial management Introduction Financial management is that managerial activity which is concerned with the planning and ...

(81)---How important is credit card debt management?

After what the economy has been reeling under, how can one undermine the importance of credit card debt management? It can also be said...